New Zealand Dollar comes under pressure against US Dollar as traders weigh a larger Fed rate hike

• NZD/USD remains under pressure near 0.5560 as US Dollar strength persists.
• A fresh 18-month high near 103.06 marks the latest advance in the US Dollar Index.
• A larger December interest rate increase by the Fed is also being considered by traders.

At around 0.5560 in Thursday’s Asian trading, the New Zealand Dollar (NZD) retains its losses of the past two days against the US Dollar (USD) and remains under pressure.

With financial markets beginning to price in the possibility of a larger interest rate increase at the Federal Reserve’s (Fed) December policy meeting, continued US Dollar outperformance leaves the Kiwi pair on a weak footing.

Up 0.18% at around 103.06 at the time of writing, the US Dollar Index (DXY) stands at its highest in over 18 months. The index measures the Greenback against six major currencies.

Waller’s remarks bring 50bp Fed hike risk back into focus

The latest reassessment in markets has been “to consider the prospect of a 50bp hike,” according to analysts at MUFG. They emphasise that the shift is “only now being considered because of Waller’s comments prior to the Consumer Price Index (CPI) report rather than the CPI report itself.” In their view, “Waller’s comment that a stronger CPI print may warrant a 50bp hike has sparked a debate over whether Waller had knowledge of the CPI print,” contributing to a rise in short-dated yields and a repricing of Fed expectations.

A 9/10 FXS Speechtracker score for Fed official Waller’s Tuesday remarks, well above the historical average of 7.3/10, reflected a notably more hawkish tone and a clear shift towards a tighter policy stance. His conditional backing for a half-point rate increase in December if October core CPI comes in at 0.3% or higher, together with support for a quarter-point rise even if inflation data improve, indicates a forceful response to any evidence of inflation moving away from target. By highlighting the breadth of price rises, the insufficiently restrictive current policy stance and the need for higher real rates, Waller reinforced upside risks to US yields and support for the Dollar. His subdued assessment of near-term productivity gains from AI also points to limited relief from supply-side disinflation.

An increase of 3.17 points took the FXS Fed Sentiment Index to 145.50, leaving it firmly in hawkish territory and in line with the high FXS Speechtracker reading. The rise confirms an increasingly forceful tilt towards further tightening in Fed communications. As markets reassess the probability of a December rate rise, that backdrop should continue to support the Dollar while putting pressure on risk-sensitive currencies.

The probability of a 50 basis points (bps) interest rate increase at the December meeting nevertheless stands at just 10%, according to the CME FedWatch tool.

For the Kiwi, expectations surrounding the Reserve Bank of New Zealand’s (RBNZ) December policy meeting would be the principal driver. After keeping its Official Cash Rate (OCR) unchanged in October, the RBNZ is likely to increase it by 25 basis points (bps) to 3%. The central bank had signalled that “tighter monetary policy probably needed” against a backdrop of upside inflation risks.

NZD/USD Remains Below Key EMA as Bearish Bias Persists

Trading at 0.5559 on the daily chart, NZD/USD has extended its retreat below the 20-period exponential moving average (EMA) at 0.5618, leaving the near-term outlook bearish. Its position beneath this short-term trend gauge suggests limited scope for rallies. Meanwhile, the Relative Strength Index (14), at around 39 following the latest fall, indicates weak conditions without extreme selling pressure.

Any corrective recovery would first encounter resistance at the 20-day EMA of 0.5618. Only a sustained move above that threshold would temper the prevailing bearish tone. Unless the pair regains it, NZD/USD remains exposed to fresh lows, with support likely only at previous price floors further down that are not identified by the current set of indicators.

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