New Zealand Dollar gains as US Dollar declines despite hawkish Fed tone
NZD/USD inches higher after posting modest losses in the previous day, trading around 0.5680 during European hours on Thursday. The pair is appreciating as the New Zealand Dollar gains momentum, driven by growing expectations of further monetary tightening by the Reserve Bank of New Zealand.
The New Zealand Dollar (NZD) is experiencing an upward trend as the US Dollar declines, despite hawkish remarks from the Federal Reserve, according to market analysis. The NZD is appreciating in value, trading around 0.5680 during European hours on Thursday, driven by growing expectations of further monetary tightening by the Reserve Bank of New Zealand.
The market now prices in an 87% chance of a third rate hike in October, a significant increase from the 20% probability earlier this month. Governor Anna Breman's warning that sustained oil price hikes could push inflation beyond the central bank's forecasts has contributed to this shift. Strategists at Brown Brothers Harriman note that the NZD is outperforming most major currencies due to Breman's more hawkish tone, raising the odds of a 25 basis points hike to 3.00% at the October 28 meeting.
Meanwhile, the US Dollar is slightly declining, even with persistent hawkish sentiment surrounding the Federal Reserve. Investors are now focusing on the upcoming US weekly Initial Jobless Claims report for further clues. The technical analysis indicates that NZD/USD trades at 0.5680, below the nine-day Exponential Moving Average (EMA) and acting as overhead resistance.
The 14-day Relative Strength Index (RSI) at 29.29 has slipped into oversold territory, suggesting strong downside momentum but also signaling potential stabilization. The NZD's performance is influenced by various factors, including the health of the New Zealand economy, China's economic performance, dairy prices, and macroeconomic data releases.
The Reserve Bank of New Zealand aims to maintain an inflation rate between 1% and 3% over the medium term, setting interest rates accordingly. When inflation is high, the RBNZ increases rates to cool the economy, making the NZD more attractive to investors. Conversely, lower interest rates weaken the NZD. The NZD tends to strengthen during risk-on periods and weaken in times of market turbulence or economic uncertainty.
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