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.)
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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