New Zealand Dollar struggles due to cautious RBNZ policy outlook

• New Zealand Dollar faces pressure from cautious sentiment regarding the Reserve Bank of New Zealand's interest rate outlook.
• US Dollar downside remains limited after August Nonfarm Payrolls rose by a strong 162,000.
• Upcoming US inflation data could determine whether the Federal Reserve pauses or proceeds with rate hikes.

NZD/USD depreciates after two days of gains, trading around 0.5880 during European hours on Monday. The pair depreciates as the New Zealand Dollar (NZD) faces pressure from cautious sentiment surrounding the Reserve Bank of New Zealand’s (RBNZ) policy outlook. The weakness persisted despite the central bank’s decision last week to raise its official cash rate for a second consecutive meeting.

However, downside risks for the NZD/USD pair could remain limited as the US Dollar (USD) weakens amid broader market uncertainty ahead of crucial US inflation data. Goldman Sachs noted that a benign Consumer Price Index reading could prevent the Federal Reserve from raising interest rates, even after robust August labor market figures cleared a major hurdle for a potential rate hike.

According to the US Bureau of Labor Statistics, August Nonfarm Payrolls increased by 162,000, comfortably exceeding expectations of 56,000. Meanwhile, the Unemployment Rate held steady at 4.1%.

Dollar focus shifts to upcoming US CPI print

Deutsche Bank highlights that “attention now turns to inflation,” with the bank’s US economists expecting a notable pickup in price pressures in the August report. They forecast that headline CPI, due on Friday, will “rise by +0.38% month-on-month in August, up from +0.07% previously,” while core CPI is “expected to print at +0.21% month-on-month, broadly unchanged from July’s +0.22%.”

Technical Analysis:

In the daily chart, NZD/USD trades at 0.5880, hovering in a neutral near-term stance as it sits just above the 50-day Exponential Moving Average (EMA) but remains capped by the nine-day EMA. This narrow band underscores a range-bound phase, while the 14-day Relative Strength Index (RSI) near 48 hints at fading upside momentum rather than outright bearish pressure, suggesting the pair may consolidate as traders await a clearer catalyst.

On the topside, immediate resistance is located at the nine-day EMA around 0.5894, and a daily close above this barrier would open the door to a more constructive recovery phase. On the downside, initial support comes from the 50-day EMA at 0.5867; a break below this level would expose lower levels and tilt the short-term bias back in favor of sellers.

Hammack flags policy as too loose, backing case for further Fed hikes

Fed’s Hammack delivered a notably more hawkish tone, with the FXS Speechtracker score at 9.2/10 versus a historical average of 7.6/10, signaling a clear shift above the established baseline. The assertion that current Fed policy is “not restrictive” and that inflation is “too high,” combined with local contacts indicating “now is time for Fed to hike,” underscores a strong bias toward additional tightening and raises the perceived probability of near-term rate increases. This rhetoric is likely to support the Dollar as markets reprice the path of policy toward a more aggressive stance.

The FXS Fed Sentiment Index rose by 1.14 points to 125.72, reinforcing that overall Fed communication remains firmly in hawkish territory well above the neutral 100 mark. The combination of a higher FXS Fed Sentiment Index and an elevated FXS Speechtracker score suggests a coordinated shift toward tighter policy guidance, which should keep upward pressure on US yields and the Dollar.

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