Dovish Hike and Hawkish Repricing Send NZD/USD to Fresh Lows

The recent dovish hike by the Reserve Bank of New Zealand (RBNZ) and the hawkish repricing of US interest rates has dealt a significant blow to the NZD/USD, driving it to fresh multi-month lows. The pair's bearish trend, which began in late August, appears to be gaining momentum as it carves out a bearish continuation structure.

The widening gap between the US two-year yield and New Zealand's has reached rare territory, with the spread sitting around 87.5 basis points, an unusually wide gap since 2000. The correlation between NZD/USD movements and changes in the NZ-US two-year spread has also strengthened dramatically, putting it near the 99.6th percentile of observations since 2000.

The focus now shifts to Fed speak, with several key events on the horizon. Chicago Fed President Austan Goolsbee's recent hawkish message suggests persistent inflation pressures could warrant more hikes than the median one additional move signalled by the Fed in its latest dot plot at the September FOMC meeting.