New Zealand Dollar Recovers Slightly as Rate Hike Odds Dip
The New Zealand Dollar (NZD) has edged off its recent lows as the US Dollar weakens, but the Kiwi remains under pressure due to shifting expectations around the Reserve Bank of New Zealand's (RBNZ) monetary policy. Traders now assign a 58% probability to an Official Cash Rate (OCR) hike to 3% on October 28, down from 80% in late September. The NZD/USD pair is trading just above 0.5600, marking its first session high since September 28.
The RBNZ's September forecast predicted an average OCR of 2.81% for the December quarter, suggesting no move in October but a hike in December. This aligns with traders' recent shift in expectations. A weaker Kiwi is exacerbating inflation concerns, as BNZ estimates the currency's decline adds about 0.3 percentage points to inflation forecasts. The trade-weighted index for the NZD is at a 15-year low, pushing up import costs and strengthening the case for an earlier rate hike.
RBNZ Governor Adrian Orr has emphasized that the bank is not on a preset course, but the exchange rate has been setting its own path. Governor Orr is scheduled to speak on Thursday, with no specific time announced. Her remarks could significantly influence market expectations, especially given her deciding vote in May to hold rates when the committee was split.
Looking ahead, several key events could impact the NZD. The Federal Reserve minutes are due on Wednesday, jobless claims on Thursday, and the University of Michigan sentiment survey on Friday. While jobless claims are unlikely to move the Kiwi significantly, Governor Orr's comments could have a more substantial impact.
Technically, the NZD/USD pair faces resistance at 0.5650 and 0.5700, with support at 0.5600 and 0.5550. The daily Stochastic Relative Strength Index (Stoch RSI) has been below 20 since mid-September, suggesting a potential bounce toward 0.5650. A daily close above 0.5700 would reverse the short-term bearish bias.