USD weakness lifts New Zealand Dollar, but domestic headwinds limit gains

• Falling oil prices and a Democratic midterm victory weighed on the US Dollar, lifting NZD/USD.
• Robust US employment and ISM figures leave the probability of a December Federal Reserve rate rise close to 82%.
• Lower expectations of an RBNZ rate rise and New Zealand’s approaching elections constrain further NZD advances.

At around 0.5650 during Thursday’s Asian session, NZD/USD is advancing for a second successive day. Heavy selling of the US Dollar (USD) has supported the pair after a Democratic sweep in the US midterm elections gave the party control of both houses of Congress, fuelling concerns about possible political gridlock in Washington. Expectations that the Middle East conflict would end swiftly also sent oil prices sharply lower, adding to the downward pressure on the Greenback.

Resilient US economic figures could nevertheless limit the currency’s decline by strengthening expectations of a Federal Reserve interest rate rise. Private-sector employment grew by 86,000 in October, according to the ADP report, exceeding the 69,000 forecast. September’s reading, however, was revised down from 90,000 to 86,000. The ISM Services PMI edged down from 54.9 to 54.5, marginally missing expectations of 54.8 while remaining comfortably in expansionary territory.

A hawkish policy outlook remains supported by these firm economic readings. The CME FedWatch Tool shows markets assigning nearly an 82% probability to another rate rise in December. Attention now turns to the next major releases: Thursday’s weekly US Initial Jobless Claims and Friday’s Nonfarm Payrolls (NFP) report.

Domestic challenges for the New Zealand Dollar also continue to restrict NZD/USD’s scope to rise. Following recent labour market figures, investors scaled back expectations of a December interest rate increase by the Reserve Bank of New Zealand (RBNZ). The market-implied probability has dropped below 50%, compared with roughly 75% earlier in the week. New Zealand’s general election on Saturday is now coming into focus, with opinion polls pointing to a close race between the governing centre-right National-led coalition and the Labour-led opposition parties.

Technical Analysis: NZD/USD Remains Under Downward Pressure

With NZD/USD at 0.5650 on the daily chart, the near-term outlook remains bearish. Trading below the 50-day Exponential Moving Average (EMA) leaves the wider downtrend in place, although the pair’s position just above the nine-day EMA suggests a tentative attempt to stabilise following recent declines. A recovery in the 14-day Relative Strength Index (RSI) towards the neutral 47.8 region indicates that selling pressure is no longer extreme. For now, however, upward momentum remains subdued.

The 50-day EMA at 0.5693 marks the first resistance level; easing the prevailing downward pressure would require a daily close above it. Immediate support lies at the nine-day EMA of 0.5638. A breach of that level would leave the pair vulnerable to fresh selling and reinforce the broader bearish pattern, with momentum still only mildly negative.

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