New Zealand Dollar trims gains near 0.5700 after softer CPI inflation data

• NZD/USD pares gains around 0.5705 in Thursday’s early Asian session.
• New Zealand’s CPI inflation slows to 3.7% YoY in the third quarter, softer than expected.
• Fed outlook seen anchoring direction until the policy meeting next week.

The NZD/USD pair steadies near 0.5705 during the early Asian trading hours on Thursday. The New Zealand Dollar (NZD) pares gains against the US Dollar (USD) following softer-than-expected Consumer Price Index (CPI) inflation data. The weekly US Initial Jobless Claims report is due later on Thursday.

Data released by Statistics New Zealand on Thursday showed that the country’s CPI inflation fell to 3.7% YoY in the third quarter (Q3) from 4.1% in the previous reading. This figure came in below forecasts of 3.8%. On a quarterly basis, the CPI rose 0.7% in Q3, compared to 1.5% in Q2, softer than the 0.8% expected.

The Kiwi edges slightly lower in an immediate reaction to the softer CPI data. However, the figure remained above the top end of the Reserve Bank of New Zealand’s (RBNZ) target range, adding to expectations that the central bank will hike rates next week.

Markets are currently pricing in nearly 98% odds that the RBNZ will hike again next week and a 100% chance that there will be 50 basis points (bps) of hikes before the end of February, according to Reuters.

On the US front, traders weigh the outlook for the Federal Reserve’s (Fed) interest-rate path ahead of next week’s policy meeting. Last week, Fed Chair Kevin Warsh gave no preview about whether he feels more interest-rate hikes will be needed, or when.

“There's not really an overarching theme for markets... and I think it's going to stay that way at least until next week into the FOMC," said Shaun Osborne, chief FX strategist at Scotiabank. "We need to get a sense of what the Fed's thinking.”

Kiwi stays underpriced as RBNZ hawkish tone keeps hike risk alive

Analysts at ING note that markets have been steadily firming their expectations for tighter policy, with investors “pricing around 18-21bp for next week’s meeting since RBNZ’s Chief Economist Paul Conway delivered hawkish remarks last week.” They highlight that Conway “explicitly said this month’s decision is wide open, that he sees risk to the upside for 4Q CPI and that the NZD weakness is worrying,” a communication that ING says “felt like an attempt to drive market pricing higher.” Against that backdrop, the bank argues that, “barring a major surprise lower in CPI tomorrow, we expect a 25bp hike next week.”

On the currency side, ING stresses that “NZD remains cheap relative to its short-term fair value model,” and they “expect it to keep recovering ground against its closest peer, AUD.” In their baseline, “we see NZD/USD trading above 0.570 into year-end,” as the combination of hawkish RBNZ rhetoric and undervaluation supports further Kiwi gains.

Warsh flags investment surge and AI risks as Fed keeps options open

Fed Chair Warsh delivered a moderately constructive but cautious message, with a 5.6/10 FXS Speechtracker score underscoring a slightly softer tone relative to the historical average of 6.1/10. The admission of being “over-scarred from the global financial crisis” highlights a persistent bias toward guarding against downside and financial stability risks even as Warsh points to structural growth and an investment surge driven by “good policies.” Emphasis on not pre-judging the October and December meetings, alongside comments that AI will hit demand before supply and that near-term employment effects are uncertain, reinforces a data-dependent stance that tempers any immediate hawkish signal for the Dollar.

The FXS Fed Sentiment Index was unchanged, moving 0.00 points to remain at a firmly hawkish 127.51, indicating that the speech did not materially alter the perceived policy trajectory despite the slightly softer FXS Speechtracker score. With the index well above 100, markets still see the Fed as leaning hawkish, but Warsh’s focus on crystallizing data on output, employment, inflation and on tail risks suggests a more nuanced balance of risks rather than an outright shift in Dollar-bullish rhetoric.

Technical Analysis: NZD/USD retains a negative tone below the 100-day SMA

In the daily chart, NZD/USD holds above the Bollinger Bands mid-line and well above the lower band, hinting at a tentative base within the recent range, but it still trades beneath the 100-day Simple Moving Average (SMA), which keeps the broader recovery capped. The Relative Strength Index (14) has firmed to around 56, suggesting improving but not yet decisive bullish momentum as price oscillates between band support and the overlying trend barrier.

On the topside, the 100-day SMA at 0.5775 is the first meaningful resistance; a daily close above this level would open the door for a more sustained rebound. On the downside, initial support is aligned with the upper Bollinger Band area around 0.5705, followed by the Bollinger mid-band near 0.5635, while a break below the lower band at approximately 0.5565 would expose the pair to a deeper setback within the prevailing range.

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