Swiss Franc advances as US Dollar weakens on Fed rate pause expectations

The New Zealand Dollar (NZD) experienced a rise to approximately 0.5700 against the US Dollar (USD) during the preliminary Asian trading session on Monday. This increase stemmed from heightened anticipation of a Reserve Bank of New Zealand (RBNZ) rate increase. Analysts project that inflation in New Zealand will surge beyond 4% in the fourth quarter and potentially remain outside the RBNZ's 1-3% target range for an extended period.

The RBNZ is anticipated to announce another 25 basis points hike to 3.00% at its upcoming decision meeting on Wednesday. Mark Smith, a senior economist at ASB Bank, asserts that sustained inflation above 3% until the fourth quarter next year and foresees a rate increase during October 28. The Federal Reserve (Fed) elevated its benchmark interest rate in September for the first time in around three years.

Speculation of further rate hikes commenced after Fed Chair Kevin Warsh conveyed a measured tone. Warsh mentioned at the International Monetary Fund's annual meeting that he would refrain from predicting future rate decisions. Fed Vice Chair Philip Jefferson and Governor Christopher Waller echoed similar sentiments, stating that there was no urgency to expedite additional hikes.

According to the CME FedWatch tool, the likelihood of an October interest rate increase dropped from nearly 70% to around 9.4%. Strategists at Brown Brothers Harriman highlight that, despite the less-than-expected inflation figures, "underlying inflation points to persistent price pressure." They emphasize that the RBNZ's sectoral factor model projected 2.8% year-over-year growth for two consecutive quarters, near the upper edge of its 1-3% target range.

Additionally, "CPI ex. petrol maintained 3.2% year-over-year for a fourth straight quarter," indicating the steadfastness of core price trends. This data supports the notion that "above target inflation and still elevated oil prices argue for further RBNZ rate hikes." However, BBH acknowledges that "NZD/USD upside is constrained because Fed tightening limits the scope for policy convergence," limiting the kiwi's potential to fully benefit from the domestic hawkish outlook.

Fed Chair Warsh's address scored 5.6/10 on the FXS Speechtracker, slightly less aggressive than the historical average of 6.1/10, suggesting a cautious stance despite optimistic comments on structural growth and investment expansion. Warsh's caution, expressed through remarks about being "over-scarred from the global financial crisis," reflects a lingering risk management and financial stability bias.

Despite this, Warsh underscores AI and private-sector investment as significant catalysts for the real economy. The FXS Fed Sentiment Index remained unchanged at 127.51, indicating a hawkish policy stance for the Dollar without introducing new tightening signals. The daily chart for NZD/USD displayed a bearish outlook as the price remained below the 100-day moving average and the upper Bollinger band.

Support was located near the Bollinger middle band at 0.5635, with a break potentially exposing the lower Bollinger band at 0.5560, a significant demand area if bearish pressure renewed.