New Zealand Dollar falls as hawkish Fed stance supports US Dollar

NZD/USD trades lower around 0.5710 on Friday at the time of writing, down 0.3% on the day. The pair comes under pressure as the US Dollar (USD) regains strength, supported by the hawkish tone adopted by Federal Reserve (Fed) Chair Kevin Warsh, keeping the outlook for US monetary policy at the center of investors’ attention.

Kevin Warsh highlighted that inflation remains uncomfortably high and argued that economic data released over the summer failed to show sufficiently convincing structural improvement. These comments fuel expectations of tighter monetary policy, supporting the US Dollar and exerting downward pressure on NZD/USD.

The CME FedWatch Tool shows that markets now assign a 53% chance to an interest rate hike at the Fed’s October meeting, up from 44% a day earlier. This repricing of the US interest rate outlook favors the Greenback as investors factor in the possibility that restrictive monetary conditions could remain in place for longer.

On the New Zealand side, monetary policy expectations nevertheless provide some support to the New Zealand Dollar (NZD). Markets assign a 60% chance that the Reserve Bank of New Zealand (RBNZ) will raise its policy rate to 3% at its upcoming monetary policy meeting in October.

New Zealand’s latest trade data also paint a mixed picture. The Trade Balance deficit narrowed to NZ$1.35 billion in August from NZ$2.12 billion in July but remains wider than the NZ$1.275 billion deficit expected by the market consensus.

Exports rose 15.4% YoY in August to NZ$6.66 billion, following a revised 10.8% increase in July. Meanwhile, Imports increased 13.1% YoY to NZ$8 billion after rising 28.4% in the previous month. Despite the improvement in the trade balance, renewed US Dollar strength currently dominates NZD/USD price action.

NZD/USD technical analysis

In the one-hour chart, NZD/USD trades at 0.5712, retaining a bearish near-term bias as it holds beneath the 100-period simple moving average (SMA) at 0.5746 and the 200-period SMA at 0.5789. The pair also remains capped by the downward resistance trend line at 0.5752, while the Relative Strength Index (RSI) around 37 leans toward weak downside momentum rather than any oversold climax.

On the topside, initial resistance appears at the horizontal barrier near 0.5728, ahead of the trend-line at 0.5752 and the clustered 100- and 200-period SMAs further up. On the downside, immediate support is seen at 0.5703, with a deeper floor at 0.5670, and a sustained move below these levels would likely extend the current bearish phase.

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