New Zealand Dollar dips, but RBNZ hike bets provide safety net

NZD/USD retreats to around 0.5940 on Wednesday at the time of writing, down 0.60% on the day. The New Zealand Dollar (NZD) loses ground against the US Dollar (USD), which finds some support following the release of the latest United States (US) inflation data.

The Bureau of Economic Analysis (BEA) reports that the Personal Consumption Expenditures (PCE) Price Index rises 3.7% YoY in July, unchanged from June but slightly above the 3.6% expected by markets. On a monthly basis, the index increases by 0.2%.

The core PCE Price Index, which excludes volatile food and energy components and is an inflation gauge closely watched by the Federal Reserve (Fed), remains steady at 3.3% YoY, in line with expectations. The core index also rises by 0.2% MoM.

The slight upside surprise in headline inflation provides some support to the Greenback, as persistent price pressures could encourage the Fed to maintain a restrictive monetary policy stance. However, the reaction remains limited as the core measure delivers no surprise and the report does not appear to significantly alter expectations for the September meeting.

According to the CME FedWatch tool, markets price in around a 36% chance of an interest-rate hike at the Fed’s next meeting, a level broadly similar to the one seen before the PCE data release.

Investors now turn their attention to Fed Chair Kevin Warsh’s speech on Friday at the Jackson Hole Economic Policy Symposium. His comments could provide fresh clues about how the US central bank assesses persistent inflation and its policy intentions ahead of the September decision.

On the New Zealand side, the monetary policy outlook nevertheless provides some support to the Kiwi and could help limit the decline in NZD/USD. Markets anticipate a 25-basis-point interest-rate hike from the Reserve Bank of New Zealand (RBNZ) at its monetary policy meeting next week, a move that would bring borrowing costs to 3% if delivered.

The divergence between an RBNZ that could tighten monetary policy further and a Fed whose next move remains more uncertain could therefore limit downside pressure on the New Zealand Dollar, even as the US Dollar benefits in the short term from slightly firmer-than-expected inflation data.

NZD/USD technical analysis

In the one-hour chart, NZD/USD trades at 0.5937, retaining a mildly bearish near-term tone as it sits below the 100-period simple moving average (SMA) at 0.5964 while holding just above the 200-period SMA at 0.5933. The pair is slipping away from recent highs, and the Relative Strength Index (RSI) near 32 approaches oversold territory, hinting that downside pressure persists but may begin to lose momentum if sellers fail to drive a clean break lower.

On the downside, immediate support is seen at the 200-period SMA at 0.5933, followed by the horizontal floor at 0.5925, where buyers could attempt to stem further losses. On the topside, initial resistance emerges at the 100-period SMA at 0.5964, ahead of the more significant horizontal barrier at 0.5985, and only a move above this upper cap would ease the current bearish bias and open the way for a more sustained recovery.

(The technical analysis of this story was written with the help of an AI tool. Know more.)