Powell's Hawkish Comments Weigh on NZD/USD as Rate Hike Probability Rises
The New Zealand dollar took a hit on Friday, September 18, after US Federal Reserve Chair Jerome Powell's hawkish comments pushed up the probability of a rate hike in October to 53.1%. The NZD/USD pair retreated from its previous day's gain and traded around 0.5720 during the European session.
Powell emphasized that inflation remains high and recent economic data have failed to reflect meaningful structural progress. As a result, interest-rate expectations adjusted swiftly, with the CME FedWatch tool showing market participants pricing in a higher probability of a rate hike at the October Fed meeting.
While this hawkish pricing provided support for the US dollar, it weighed on the New Zealand dollar. However, market expectations of a Reserve Bank of New Zealand (RBNZ) rate hike in October remain high, with a 60% probability assigned to a 0.25% increase to 3.0%. This expectation provides yield-spread support for the NZD.
The narrowing trade deficit in August, which stood at NZ$1.35 billion, also provided some support for the kiwi. However, falling oil prices and geopolitical developments have dampened the dollar's momentum.