New Zealand Dollar struggles as softer inflation expectations challenge RBNZ hawks

• NZD/USD retreats to around 0.5850 on Thursday, losing 0.15% on the day.
• New Zealand’s two-year inflation expectations ease to 2.34% in the third quarter.
• The US Dollar remains under pressure following softer-than-expected US producer inflation data.

NZD/USD trades around 0.5850 on Thursday at the time of writing, down 0.15% on the day. The New Zealand Dollar (NZD) remains under pressure following the release of softer inflation expectations in New Zealand, which cast doubt on the prospect of further monetary tightening by the Reserve Bank of New Zealand (RBNZ). However, weakness in the US Dollar (USD) following subdued US inflation data helps limit the pair’s decline.

The RBNZ’s two-year inflation expectations, a closely watched horizon for assessing how monetary policy feeds through to prices, ease to 2.34% in the third quarter of 2026 from 2.53% in the previous quarter. One-year inflation expectations stand at 2.6%.

The decline could temper expectations that the New Zealand central bank will deliver another 25-basis-point interest rate hike at its September meeting. Financial markets had previously shown greater confidence in the prospect of another rate increase, which could support the Kiwi. However, lower inflation expectations reduce the need for the RBNZ to tighten monetary policy further.

On the US side, the Greenback remains under pressure following the release of the United States (US) Producer Price Index (PPI). Producer prices slowed sharply to 4.7% YoY from 5.5% previously, below the 4.9% market consensus. Underlying inflationary pressures also show signs of moderation. The core PPI slowed to 4.2% YoY from 4.7% previously.

These figures reinforce the disinflationary signal delivered on Wednesday by the Consumer Price Index (CPI). The simultaneous moderation in consumer and producer price pressures reduces pressure on the Federal Reserve (Fed) to tighten its monetary policy stance, weighing on the US Dollar.

US labor market data released on Thursday also provide limited support to the Greenback. Initial Jobless Claims rose to 209K for the week ending August 8, up from 200K previously and above the 202K expected. Continuing Jobless Claims, however, declined by 22K to 1.777M for the week ending August 1.

Geopolitical risks could nevertheless limit losses in the US Dollar by supporting demand for safe-haven assets. US President Donald Trump says the United States has “total control” over the strategic waterway amid persistent tensions between Washington and Tehran and stalled diplomatic negotiations. The Trump administration is also seeking to increase economic pressure on Iran, including through broader sanctions and measures aimed at restricting Iranian Oil exports.

Kiwi steadies as RBNZ expectations stay anchored but swaps price further tightening

Strategists at Brown Brothers Harriman note that “NZD/USD dropped briefly under its 200-day moving average (0.5832)” after the release of the RBNZ’s Q3 inflation expectations survey, which they describe as “mixed but still well anchored.” According to BBH, the survey showed that “expectations for one-year-ahead annual CPI inflation decreased -81bps to 2.60%, two-year ahead decreased -19bps to 2.34%, five-year-ahead increased +9bps to 2.31%, and ten-year ahead increased +1bps to 2.20%.” They conclude that “overall, inflation expectations remain close to the RBNZ 2% target midpoint for inflation, underscoring the bank’s credibility.”

BBH argues that the policy backdrop still points to further tightening, noting that “nonetheless, above target inflation, more favorable domestic growth outlook, and a policy rate near the lower-end of the RBNZ’s neutral range (2.20%-4.10%) argue for additional RBNZ rate hikes.” In rates markets, they highlight that “the swaps curve more than fully price in 75bps of tightening over the next twelve months to 3.25% which bodes well for NZD.”

NZD/USD technical analysis

In the one-hour chart, NZD/USD trades at 0.5848, retaining a bearish near-term tone as it holds beneath both the 100-period simple moving average (SMA) and the 200-period SMA, clustered around 0.5874, as well as the horizontal barrier at 0.5860 and the descending trend-line resistance near 0.5879. The Relative Strength Index (RSI) at 47.8 sits just below neutral, hinting at subdued downside momentum rather than an oversold condition, which suggests scope for further consolidation while the pair remains capped by this overhead structure.

On the topside, initial resistance is located at the horizontal line at 0.5860, ahead of a dense supply zone defined by the 100- and 200-period SMAs around 0.5874, with the downward-sloping trend line near 0.5879 acting as the next hurdle for any recovery attempt. On the downside, the key support level emerges at the horizontal floor at 0.5821; a clear break below this base would likely extend the decline, while holding above it keeps NZD/USD in a tight range under the aforementioned moving average and trend-line caps.

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