New Zealand Dollar retreats as Fed hawks retake the upper hand

• Higher-than-expected US inflation data lifts the US Dollar, leaving NZD/USD down 0.68% on Wednesday.
• October US consumer prices exceed forecasts, bolstering expectations of additional monetary tightening.
• Lower oil prices temper New Zealand’s inflationary pressures, making interest rate rises less likely.

Stronger-than-forecast US inflation figures are fuelling expectations of further interest rate rises by the Federal Reserve (Fed), putting the New Zealand Dollar (NZD) under pressure against the US Dollar (USD). Renewed selling on Wednesday has taken NZD/USD down 0.68% on the day to around 0.5565 at the time of writing.

Tuesday’s release of the October US Consumer Price Index (CPI) showed a 0.4% MoM rise in headline prices. That exceeded the market forecast of 0.3%, though it marked a slowdown from September’s 0.6% increase. Excluding volatile food and energy prices, Core CPI rose 0.3% MoM, matching September’s reading and surpassing the 0.2% forecast. The data point to persistent underlying inflationary pressures, reinforcing the argument for a more restrictive monetary stance.

Expectations of a December interest rate rise increased sharply among investors after the inflation report. Markets now price in approximately an 85% probability of an increase at the Fed’s next meeting, according to the CME FedWatch tool, as concerns over persistent inflation mount.

US government bonds also sold off on Tuesday in response to the inflation surprise, taking the benchmark 10-year US Treasury yield above 5%. By making USD-denominated assets more attractive, higher yields are putting additional pressure on NZD/USD.

Declining oil prices present a further headwind for the Kiwi. Their potential to ease inflationary pressures in New Zealand could lessen the need for additional monetary tightening by the Reserve Bank of New Zealand (RBNZ).

As lower energy costs could moderate consumer price increases, investors are being encouraged to pare back expectations of future RBNZ interest rate rises. The resulting divergence in US and New Zealand monetary policy expectations remains a drag on the currency pair.

Investors are also watching New Zealand’s political developments, with coalition negotiations continuing and uncertainty remaining over the Finance Minister position.

Taken together, US Dollar strength, higher US Treasury yields and fading expectations of RBNZ tightening could keep any recovery in the New Zealand Dollar in check.

NZD/USD retains a bearish technical bias

Trading at 0.5564 on the one-hour chart, NZD/USD remains below both the 100-period simple moving average (SMA) at 0.5595 and the 200-period SMA at 0.5609, leaving the near-term outlook bearish. With the pair testing the bottom of its recent range, the Relative Strength Index (14) is falling within oversold territory near 25. This suggests that selling pressure remains in place, although the risk of a corrective bounce is beginning to increase.

The first resistance level stands at 0.5573, with 0.5586 next, followed by the 100-period SMA at 0.5595 and the 200-period SMA at 0.5609. This cluster forms a dense supply zone that would have to be cleared to soften the prevailing bearish bias. Immediate support lies at 0.5555, ahead of further levels at 0.5544 and 0.5527. A breach of these supports would open the way for a deeper fall; holding above them, by contrast, could permit an oversold rebound towards the nearby resistance band.

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