New Zealand Dollar retreats despite growing RBNZ rate hike expectations

• NZD/USD falls 0.25% on Monday, despite expectations of further monetary tightening in New Zealand.
• Markets anticipate a third consecutive interest rate hike, bringing the benchmark rate to 3.0%.
• The US Dollar remains under pressure ahead of the Fed's monetary policy decision and key US economic data.

NZD/USD declines by 0.25% on Monday, trading around 0.5680 at the time of writing, despite growing expectations of an interest rate hike in New Zealand. The New Zealand Dollar (NZD) struggles to benefit from the prospect of further monetary tightening by the Reserve Bank of New Zealand (RBNZ), as investors await several major monetary policy decisions and economic releases this week.

Expectations surrounding the RBNZ's upcoming policy decision have recently shifted toward another interest rate increase. According to TD Securities, the firm has shifted its near-term view on the RBNZ, noting that “we had forecast the RBNZ to pause at its October meeting. We now forecast the Bank to hike the Official Cash Rate 25bps at this week's meeting to 3%.” Despite the change in timing, strategists at the bank emphasize that “nonetheless, we stick to our call for 25bps hikes in December and February. Accordingly, this pushes our terminal rate from 3.25% to 3.50%.”

The latest data from New Zealand showed that inflation eased slightly more than expected in the third quarter. However, economists anticipate a renewed acceleration in consumer prices in the fourth quarter, potentially pushing inflation above 4%, beyond the RBNZ's target range of 1% to 3%.

This outlook could encourage the central bank to continue tightening monetary policy to contain price pressures, potentially providing support for the New Zealand Dollar.

On the US side, the US Dollar (USD) remains under pressure amid expectations that the Federal Reserve (Fed) will leave interest rates unchanged at its October 27-28 policy meeting.

According to the CME FedWatch tool, markets are pricing in a 90% chance of a rate hold in October, while the likelihood of another interest rate hike in December stands at 79%.

This potential divergence between the monetary policies of the two central banks could support NZD/USD, particularly if the RBNZ confirms its intention to continue raising interest rates.

Investors are also closely monitoring upcoming US economic releases, particularly the Personal Consumption Expenditures (PCE) Price Index, the Fed's preferred inflation gauge, and preliminary third-quarter Gross Domestic Product (GDP) figures. These indicators could influence expectations regarding the future path of US interest rates and, consequently, the direction of the US Dollar.

NZD/USD technical analysis

In the one-hour chart, NZD/USD trades at 0.5687. The pair is sandwiched between its major moving averages, holding above the 200-period simple moving average (SMA) at 0.5665 but trading just beneath the 100-period SMA at 0.5689, which hints at a capped intraday tone within an overall supported structure. The Relative Strength Index (14) at 47.2 sits just below the neutral 50 line, suggesting consolidative momentum after the recent pullback from the 0.5700 area.

On the topside, immediate resistance is located at the 100-period SMA at 0.5689, followed by the horizontal barrier at 0.5710. On the downside, initial support appears at the horizontal level at 0.5668, ahead of the 200-period SMA at 0.5665, where buyers would be expected to defend the broader intraday range.

(The technical analysis of this story was written with the help of an AI tool. Know more.)