The New Zealand Dollar (NZD) declined against the US Dollar (USD), with the NZD/USD pair trading near 0.5950 during the early Asian session on Thursday, following the release of US inflation data that increased expectations for a Federal Reserve (Fed) rate hike [1]. The US Commerce Department reported that the Personal Consumption Expenditures (PCE) Price Index rose 3.7% year-over-year in July, unchanged from June and slightly above the 3.6% estimate. On a monthly basis, the PCE increased 0.2%, surpassing the consensus forecast of 0.1% growth [1]. Core PCE inflation, the Fed’s preferred gauge, remained steady at 3.3% YoY in July, matching expectations [1].
These inflation figures have kept market expectations for a Fed rate hike by year-end alive. According to the CME FedWatch tool, the probability of a 25 basis points (bps) Fed rate hike in September rose to nearly 38% after the data, up from 36% previously [1]. Westpac economist Ryan Wells noted that the upcoming speech by Fed Chairman Kevin Warsh at the Jackson Hole Symposium on Friday will be crucial for further rate outlook clarity [1].
Attention is also turning to the Reserve Bank of New Zealand (RBNZ), with Brown Brothers Harriman highlighting that a 25bps hike to 2.75% is virtually fully priced-in ahead of the September 2 policy decision, despite recent softness in headline retail activity [1]. Elias Haddad emphasized that the next RBNZ policy meeting will include a fresh Monetary Policy Statement, reinforcing market conviction that the central bank will continue its tightening cycle [1].
Technical analysis suggests a constructive bullish tone for NZD/USD as the spot price remains above the 100-day simple moving average (SMA) and the middle line of the Bollinger Bands. The Relative Strength Index (14) is at 61.7, indicating positive momentum without signaling overbought conditions. Immediate resistance is at 0.5985, while initial support is at 0.5905, with deeper support at the 100-day SMA near 0.5845 and the lower Bollinger Band at 0.5830 [1].
CONCLUSION
The NZD/USD pair has weakened as US inflation data reinforced expectations for further Fed tightening, with markets now pricing in a higher probability of a September rate hike. Meanwhile, a back-to-back RBNZ rate hike is seen as virtually fully priced-in ahead of its September policy meeting. Traders are awaiting key speeches at the Jackson Hole Symposium for additional guidance on US interest rate direction.