New Zealand Dollar gains as US Dollar declines despite hawkish Fed tone
- NZD/USD rises as RBNZ October rate hike odds jump to 87% following inflation warnings over rising oil prices.
- September manufacturing PMI beat expectations at 52.0, helping support underlying US Dollar sentiment.
- Markets price in a 69% chance of an October Fed hike ahead of jobless claims.
NZD/USD inches higher after posting modest losses in the previous day, trading around 0.5680 during European hours on Thursday. The pair is appreciating as the New Zealand Dollar gains momentum, driven by growing expectations of further monetary tightening by the Reserve Bank of New Zealand. Markets are currently pricing in an 87% chance of a third rate hike in October, a dramatic increase from just 20% earlier this month. This shift comes after Governor Anna Breman warned that sustained oil price hikes could drive near-term inflation past the central bank’s recent projections.
NZD rallies as RBNZ hawkish shift lifts rate hike odds
Strategists at Brown Brothers Harriman highlight that the New Zealand Dollar is “outperforming most major currencies” after a more hawkish tone from RBNZ Governor Anna Breman. They note that her remarks have “raised odds of a 25bps hike to 3.00% at the next October 28 meeting,” reinforcing market expectations that the RBNZ may tighten policy further in the near term.
Meanwhile, the currency pair is holding its gains as the US Dollar ticks slightly lower, even amid persistent hawkish sentiment surrounding the Federal Reserve. The greenback's underlying strength remains anchored by recent Flash US S&P Global PMI data for September, which revealed faster-than-expected growth in manufacturing at 52.0, helping cushion minor dips in composite and services activity.
Investors are now turning their attention to the upcoming US weekly Initial Jobless Claims report for further directional cues. In the background, market expectations for a 25-basis-point Fed rate hike in October have surged to nearly 69%, up from 55.4% the previous day, as multiple Fed officials maintain their stance in favor of recent rate increases to combat ongoing inflation risks.
Technical Analysis:
In the daily chart, NZD/USD trades at 0.5680, extending its decline below the short- and medium-term trend lines, with the nine-day Exponential Moving Average (EMA) at 0.5727 and the 50-day EMA at 0.5817 now acting as overhead resistance. The near-term bias remains bearish as price holds well under these moving averages, while the 14-day Relative Strength Index (RSI) at 29.29 slips into oversold territory, hinting that downside momentum is strong but the sell-off is becoming stretched.
On the topside, initial resistance is seen at the nine-day EMA, followed by the denser barrier at the 50-day EMA, which caps any deeper recovery attempts for now. On the downside, with no nearby structural price floors, the oversold RSI at 29.29 serves as the only reference point for potential stabilization, suggesting that while further weakness is possible, the pair could soon start consolidating rather than aggressively extending losses.
(The technical analysis of this story was written with the help of an AI tool. Know more.)
New Zealand Dollar FAQs
The New Zealand Dollar (NZD), also known as the Kiwi, is a well-known traded currency among investors. Its value is broadly determined by the health of the New Zealand economy and the country’s central bank policy. Still, there are some unique particularities that also can make NZD move. The performance of the Chinese economy tends to move the Kiwi because China is New Zealand’s biggest trading partner. Bad news for the Chinese economy likely means less New Zealand exports to the country, hitting the economy and thus its currency. Another factor moving NZD is dairy prices as the dairy industry is New Zealand’s main export. High dairy prices boost export income, contributing positively to the economy and thus to the NZD.
The Reserve Bank of New Zealand (RBNZ) aims to achieve and maintain an inflation rate between 1% and 3% over the medium term, with a focus to keep it near the 2% mid-point. To this end, the bank sets an appropriate level of interest rates. When inflation is too high, the RBNZ will increase interest rates to cool the economy, but the move will also make bond yields higher, increasing investors’ appeal to invest in the country and thus boosting NZD. On the contrary, lower interest rates tend to weaken NZD. The so-called rate differential, or how rates in New Zealand are or are expected to be compared to the ones set by the US Federal Reserve, can also play a key role in moving the NZD/USD pair.
Macroeconomic data releases in New Zealand are key to assess the state of the economy and can impact the New Zealand Dollar’s (NZD) valuation. A strong economy, based on high economic growth, low unemployment and high confidence is good for NZD. High economic growth attracts foreign investment and may encourage the Reserve Bank of New Zealand to increase interest rates, if this economic strength comes together with elevated inflation. Conversely, if economic data is weak, NZD is likely to depreciate.
The New Zealand Dollar (NZD) tends to strengthen during risk-on periods, or when investors perceive that broader market risks are low and are optimistic about growth. This tends to lead to a more favorable outlook for commodities and so-called ‘commodity currencies’ such as the Kiwi. Conversely, NZD tends to weaken at times of market turbulence or economic uncertainty as investors tend to sell higher-risk assets and flee to the more-stable safe havens.
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