The NZD/USD pair gains traction to near 0.5615 during the early Asian trading hours on Friday. The US Dollar (USD) weakens against the New Zealand Dollar (NZD) amid easing Treasury bond yields. Traders weigh lingering inflation concerns and the outlook for Federal Reserve (Fed) interest rates. The Michigan Consumer Sentiment Index data for October will be released later on Friday.
Last month, the Fed voted unanimously to hike the policy rate by a quarter of a percentage point. St. Louis Fed President Alberto Musalem said on Thursday that the US central bank will need to hike rates again to bring inflation back to its 2% target, although he declined to say what policymakers should do at their meeting later this month.
Fed Governor Christopher Waller stated that further rate hikes will likely be needed to lower inflation to the Fed’s 2% target, but added there was “flexibility” about the pace of increases and left the door open for a pause at the upcoming October meeting.
Easing expectations for further rate increases by the Fed weigh on bond yields. The benchmark 10-year Treasury yield declined more than 4 basis points (bps) to 5.227% after hitting its highest level since 2002 this week. Meanwhile, the 30-year Treasury bond yield fell more than 5 bps to 5.602% after trading around a 24-year high recently.
Traders are pricing in 17.7% odds of a rate hike in October and an 83% probability of an increase in December, according to the CME FedWatch tool.
Westpac analysts still expect the Reserve Bank of New Zealand to hold the Official Cash Rate (OCR) steady at 2.75% this month, with a 25 bps rise in December, and two further increases in early 2027.
USD extends gains as oil and yields surge but Fed expectations stay muted
Strategists at Scotiabank highlight that the “USD continues to show broad strength and is entering Thursday’s NA session with gains against all of the G10 currencies,” even as underlying rate expectations remain relatively contained. They note that the geopolitical backdrop is feeding directly into core markets, with “the impact on oil prices and global bond yields… clear, with WTI up $4/bbl on the day and trading back above $90/bbl as the US 10Y threatens fresh multi-decade highs above 5.35% nearing levels last seen in 2002.” Despite these moves, Scotiabank points out that “Fed pricing remains muted with only 5bpts of tightening priced for October and a cumulative 26bpts by December, showing little reaction to the latest turn in oil prices.”
Waller flags more Fed hikes but signals flexible pace, keeping Dollar supported
Fed’s Waller delivered a distinctly hawkish message, with an FXS Speechtracker score of 8/10, above the established baseline of 7.2/10, underscoring a stronger-than-usual tightening bias. The emphasis that “more hikes [are] needed” but that they need not come at consecutive meetings signals a preference for a higher terminal rate with tactical flexibility, while highlighting AI-related investment and ongoing energy shocks as persistent inflation drivers alongside a strengthening economy and a still “solid and stable” labor market. Concern that inflation has been above target for nearly 5-1/2 years and could unanchor expectations reinforces a bias toward further policy tightening, a configuration that is typically supportive for the Dollar.
The FXS Fed Sentiment Index rose by 0.42 points to 138.34, firmly in hawkish territory and consistent with the elevated FXS Speechtracker reading. This move confirms that market-implied Fed stance has shifted further toward tightening expectations, reinforcing a hawkish policy narrative that should remain a medium-term positive for the Dollar.
Technical Analysis: NZD/USD retains a negative tone below the 100-day SMA
In the daily chart, NZD/USD keeps a bearish near-term tone as spot holds beneath the 20-period Bollinger middle band the 100-day moving average (MA). Price is also capped by the upper Bollinger band 8, reinforcing a downside bias despite the Relative Strength Index (14) edging up toward 33, which only hints that previous oversold conditions may be easing rather than signaling a bullish reversal.
On the topside, initial resistance is located at the Bollinger middle band around 0.5665, followed by the upper band at 0.5778 and then the 100-day MA at 0.5795, where a sustained break would be needed to challenge the prevailing bearish structure. On the downside, the lower Bollinger band at 0.5555 offers immediate support, and a daily close below this level would open the door to a fresh leg lower toward the mid-0.55s.
(The technical analysis of this story was written with the help of an AI tool. Know more.)
New Zealand Dollar FAQs
The New Zealand Dollar (NZD), also known as the Kiwi, is a well-known traded currency among investors. Its value is broadly determined by the health of the New Zealand economy and the country’s central bank policy. Still, there are some unique particularities that also can make NZD move. The performance of the Chinese economy tends to move the Kiwi because China is New Zealand’s biggest trading partner. Bad news for the Chinese economy likely means less New Zealand exports to the country, hitting the economy and thus its currency. Another factor moving NZD is dairy prices as the dairy industry is New Zealand’s main export. High dairy prices boost export income, contributing positively to the economy and thus to the NZD.
The Reserve Bank of New Zealand (RBNZ) aims to achieve and maintain an inflation rate between 1% and 3% over the medium term, with a focus to keep it near the 2% mid-point. To this end, the bank sets an appropriate level of interest rates. When inflation is too high, the RBNZ will increase interest rates to cool the economy, but the move will also make bond yields higher, increasing investors’ appeal to invest in the country and thus boosting NZD. On the contrary, lower interest rates tend to weaken NZD. The so-called rate differential, or how rates in New Zealand are or are expected to be compared to the ones set by the US Federal Reserve, can also play a key role in moving the NZD/USD pair.
Macroeconomic data releases in New Zealand are key to assess the state of the economy and can impact the New Zealand Dollar’s (NZD) valuation. A strong economy, based on high economic growth, low unemployment and high confidence is good for NZD. High economic growth attracts foreign investment and may encourage the Reserve Bank of New Zealand to increase interest rates, if this economic strength comes together with elevated inflation. Conversely, if economic data is weak, NZD is likely to depreciate.
The New Zealand Dollar (NZD) tends to strengthen during risk-on periods, or when investors perceive that broader market risks are low and are optimistic about growth. This tends to lead to a more favorable outlook for commodities and so-called ‘commodity currencies’ such as the Kiwi. Conversely, NZD tends to weaken at times of market turbulence or economic uncertainty as investors tend to sell higher-risk assets and flee to the more-stable safe havens.
