Larger Fed rate hike in focus as traders put New Zealand Dollar under pressure against US Dollar

• 0.5560: NZD/USD remains near this level, retaining losses as the US Dollar leads.
• Near 103.06, the US Dollar Index reaches a new 18-month high.
• A larger December interest rate increase by the Fed is also entering traders’ calculations.

0.5560 is roughly where NZD/USD holds in Thursday’s Asian session. The New Zealand Dollar (NZD) remains under pressure against the US Dollar (USD), retaining losses accumulated over two days.

Continued US Dollar outperformance leaves the Kiwi pair on a weak footing. Financial markets have begun pricing in the possibility that the Federal Reserve (Fed) will deliver a larger interest rate increase at its December policy meeting.

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

50bp hike risk returns as Waller fuels Fed debate

Waller’s remarks, rather than the inflation release itself, prompted the latest reassessment, according to MUFG analysts. They describe the market shift as “to consider the prospect of a 50bp hike,” adding that it is “only now being considered because of Waller’s comments prior to the Consumer Price Index (CPI) report rather than the CPI report itself.” The analysts also note that “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 higher front-end yields and a repricing of Fed expectations.

Tuesday’s remarks from the Fed’s Waller registered 9/10 on the FXS Speechtracker, substantially above the historical average of 7.3/10. The more hawkish tone points to a clear shift towards tighter policy. Waller conditionally backed a half-point December rate increase if October core CPI comes in at 0.3% or higher, while supporting a quarter-point increase even if inflation data improve. That stance signals a forceful policy response to any indication that inflation is moving away from target. His focus on broad-based price rises, insufficiently restrictive policy and the need for higher real rates reinforces upside risks to US yields and lends support to the Dollar. Meanwhile, his pessimism about near-term productivity gains from AI suggests limited scope for supply-side disinflation to provide relief.

An increase of 3.17 points brought the FXS Fed Sentiment Index to 145.50, placing it firmly in hawkish territory and aligning with the high FXS Speechtracker score. The rise confirms a more aggressive tilt towards further tightening in Fed communications. As markets reassess the probability of a December hike, that backdrop should underpin the Dollar and pressure risk-sensitive currencies.

Despite this, the CME FedWatch tool puts the probability of a 50 basis points (bps) interest rate increase at the December meeting at just 10%.

For the Kiwi, expectations surrounding the Reserve Bank of New Zealand (RBNZ) policy meeting in December would be the main driver. A 25 basis points (bps) increase in the Official Cash Rate (OCR) to 3% is likely, following the RBNZ’s decision to hold it unchanged at the October meeting. With inflation risks tilted to the upside, the central bank signalled that “tighter monetary policy probably needed”.

0.5559: NZD/USD Technical Analysis Shows Bearish Bias

At 0.5559 on the daily chart, NZD/USD continues to retreat beneath the 20-period exponential moving average (EMA) of 0.5618, leaving the near-term outlook bearish. Trading below this short-term trend gauge suggests rebounds remain constrained. Meanwhile, a Relative Strength Index (14) reading near 39 indicates weak momentum, though selling pressure is not extreme after the latest decline.

The first obstacle to a corrective recovery is the 20-day EMA at 0.5618, which marks initial resistance. Only a sustained move above it would ease the prevailing bearish bias. Without a recovery through that level, NZD/USD remains exposed to new lows. Support is likely to appear only at lower previous price floors that the current set of indicators does not capture.

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