NZD/USD Rebounds Towards 0.5640 as Falling Yields Weigh on the US Dollar

Key Takeaways

• NZD/USD rose 0.35% to 0.56398 on Friday, extending its recovery from an 18-month low as US Treasury yields declined.
• The kiwi is up roughly 0.3% this week and on course to end a seven-week losing streak.
• RBNZ Chief Economist Paul Conway said an OCR increase remains the most likely outcome for the 28 October meeting, though timing is uncertain.
• US inflation and spending data remain strong, keeping expectations of further Federal Reserve tightening in focus despite the dollar’s recent weakness.
• Traders are watching 0.5640 as resistance, with 0.5635 and 0.5630 as key support levels.

The pair has bounced from its lows, though the recovery remains sensitive to interest rate expectations in both New Zealand and the United States.

Why Traders Are Watching NZD/USD

NZD/USD is recovering as traders reassess the monetary policy outlook for the Reserve Bank of New Zealand (RBNZ) and the Federal Reserve. The pair climbed towards 0.5620 during the broader recovery before reaching 0.56398 in the latest session, reflecting improved demand for the kiwi after several weeks of persistent selling.

On Thursday, Conway said the central bank’s late-October decision remains open, but policymakers still see an OCR increase as the most likely outcome. These remarks reinforced expectations that borrowing costs could rise. Higher rates can increase a currency’s appeal, particularly when investors expect the interest rate differential with other economies to narrow. Meanwhile, falling US Treasury yields have weakened the US dollar, creating a more favourable backdrop for NZD/USD.

Key factors influencing the pair include:

• RBNZ policy: Expectations of an OCR hike support the New Zealand dollar.
• US Treasury yields: Falling yields weaken the dollar and favour NZD/USD.
• Federal Reserve outlook: Strong US inflation and spending data keep further tightening in focus.
• New Zealand inflation: The third-quarter report is the next major catalyst.

Key Trading Levels

NZD/USD is trading near 0.56398, with immediate resistance at 0.5640, the psychological level near the session high, and near-term resistance at 0.5638. The pair has formed a series of higher highs and higher lows while holding above its nine-period moving average. A sustained break above 0.5640 could indicate that buyers remain in control.

On the downside, 0.5635 is the first notable support, having served as a consolidation area during the recovery. A move below it could expose 0.5630, followed by 0.56275, the approximate starting area of the recovery.

NZD/USD Prediction: Will the Pair Rise or Fall?

The pair’s next move depends on whether buyers can defend 0.5635 and break through 0.5640, or whether sellers return and test 0.5630.

A bullish scenario could develop if NZD/USD holds above 0.5635 and breaks 0.5640, with the upward-sloping nine-period moving average supporting the pattern of higher highs and higher lows. A bearish scenario could emerge if the pair meets selling pressure around 0.5640 and fails to establish a higher trading range. An initial decline towards 0.5635 would test the recent breakout, and if that support fails, the pair could retreat towards 0.5630 and then 0.56275.

New Zealand’s third-quarter inflation report, due next week, is the final major release before the RBNZ’s 28 October meeting. A stronger reading could reinforce the case for tighter policy and support the kiwi, while a softer one could reduce expectations of an imminent hike and limit the recovery. Continued weakness in US yields could also support the pair, but the recovery could face resistance if US data reinforces the prospect of further Federal Reserve tightening.

To read the full technical analysis or potential scenarios, read the full article here.