NZD Falls Under Pressure Despite Rising Rate Hike Bets

The New Zealand Dollar (NZD) is under pressure but losses are cushioned by rising expectations of further monetary tightening from the Reserve Bank of New Zealand (RBNZ).

According to FXStreet, markets now price in an around 87% chance of a third RBNZ rate hike in October, up from just 20% earlier this month.

This increase in expectations was fueled by comments from RBNZ Governor Anna Breman, who warned that sustained oil prices could push near-term inflation above the bank's latest projections, necessitating continued restrictive monetary policy.

However, despite these supportive factors for the NZD, the pair remains under pressure from a strong US Dollar (USD) and elevated US Treasury yields. The 10-year yield has climbed to around 5.16%, its highest level since 2007, while the two-year yield trades near 4.91%.

The rise in yields follows robust US activity data, including an unexpected climb to 58.4 in September for the S&P Global Composite Purchasing Managers Index (PMI), and strong labor-market data that support a continued fight against inflation by the Federal Reserve (Fed).