New Zealand Dollar struggles to lure buyers as weak USD limits losses

On Friday, the New Zealand Dollar (NZD) struggled to attract buyers as a weak US Dollar limited its losses. The NZD/USD pair slipped during the Asian session, falling back to the 0.5630-0.5625 range after a brief recovery from a two-week low following the Reserve Bank of New Zealand (RBNZ) decision on Wednesday. The pair could register its first heavy loss in the past three weeks.

The RBNZ unexpectedly maintained its Official Cash Rate (OCR) at 2.75%, disappointing investors who had anticipated a near-certain 25-basis-point hike. Four RBNZ members, including Governor Anna Breman, opted to hold and evaluate the delayed effects of previous rate hikes in July and September, which contradicted the committee's tightening bias and hindered the NZD.

Despite this, the NZD/USD pair's downside was somewhat cushioned as the US Dollar (USD) faced selling pressure for the third consecutive day. Rising hopes of US-Iran diplomatic engagement reduced the geopolitical risk premium, reflected in declining US bond yields and negatively impacting the safe-haven dollar. While investors remain cautious due to the US-Iran conflict at the Strait of Hormuz and escalating hostilities between Iran-backed Houthis and Saudi Arabia, these uncertainties bolstered crude oil prices, exacerbating inflation concerns and supporting hawkish expectations from the US Federal Reserve (Fed).

According to CME Group's FedWatch Tool, there is a 75% probability of a US rate hike in December. The recent US macro data indicated that economic growth accelerated to a 3.4% annualized pace in the third quarter, and inflation rose in September, providing support for potential USD buying at lower levels. Consequently, the NZD/USD pair's path of least resistance appears to be on the downside, with any recovery attempt more likely to be met with selling.