Both the New Zealand Dollar (NZD) and Australian Dollar (AUD) experienced notable declines against the US Dollar (USD) during Tuesday's trading session, despite recent and anticipated rate hikes by their respective central banks. NZD/USD fell to around 0.5650, marking a 0.25% drop on the day and approaching its lowest level since late June [1]. The AUD, meanwhile, dropped almost 0.4% below 0.7000 against the USD, breaking below the 61.8% Fibonacci retracement at 0.7010 [2]. The heat map of major currencies confirmed the Australian Dollar as the weakest performer against the US Dollar, with a -0.46% change, while the New Zealand Dollar also declined by -0.39% [2].
The US Dollar's strength was attributed to persistent geopolitical tensions between the United States and Iran, which have increased demand for safe-haven assets [1]. Iranian Foreign Minister Abbas Araghchi discussed proposals with Qatari mediators, but the reopening of the Strait of Hormuz remains conditional, and US President Donald Trump recently rejected an Iranian proposal [1]. Additionally, firm US Treasury yields and anticipation of upcoming US economic data, including PCE inflation, ISM Manufacturing PMI, and Nonfarm Payrolls, contributed to the Greenback's outperformance [1][2].
Despite the downward pressure, both the RBNZ and RBA have signaled ongoing monetary tightening. Markets now see an 80% chance that the RBNZ will raise its Official Cash Rate by 25 basis points to 3.00% at its October 28 meeting, up from a one-in-three chance after the September hike [1]. RBNZ Governor Anna Breman warned that higher crude oil prices could push near-term inflation above projections, and stronger-than-expected Q2 growth data have reinforced expectations for further tightening [1]. The upcoming New Zealand CPI release on October 21 is expected to be closely watched, as persistent inflation could reinforce rate hike expectations [1].
The RBA recently raised its Official Cash Rate for the fourth time this year, lifting the policy rate to 4.60% [2]. Governor Michele Bullock delivered hawkish remarks, stating the central bank will "continue to do what it considers necessary to bring inflation sustainably back to target, including increasing the cash rate target further if needed" [2]. However, Bullock also expressed uncertainty, saying she hopes "four hikes are restrictive enough to slow inflation, but she doesn’t know," which has tempered expectations for additional near-term tightening and contributed to the softer tone in AUD [2]. Analysts at MUFG noted that the AUD's yield appeal remains intact, but the currency softened overnight due to these mixed signals [2].
Technical analysis for NZD/USD shows a bearish near-term bias, with the pair trading below both the 100-hour and 200-hour simple moving averages and capped by resistance at 0.5686 [1].
CONCLUSION
Despite recent and anticipated rate hikes by the RBNZ and RBA, both the New Zealand and Australian Dollars have weakened against the US Dollar, driven by geopolitical tensions and strong US economic fundamentals. Market sentiment remains cautious, with central bank officials signaling willingness to tighten further but also expressing uncertainty about the effectiveness of current measures. The upcoming New Zealand CPI and US economic data releases are expected to be key drivers for further currency movements.