The Kiwi defies hot US inflation as Fed pause bets weaken the USD

• NZD/USD gains 0.55% to 0.5652 as the Greenback retreats.
• October Fed hike odds remain at 16% despite elevated inflation.
• NZ CPI could reshape RBNZ tightening expectations ahead of October's meeting.

The New Zealand Dollar ended the week on a higher note against the US Dollar, up 0.55% to 0.5652, as the Greenback weakened amid investors' skepticism about a Fed hike in October despite the US docket featuring red-hot inflation.

NZD/USD closes higher as October Fed hike skepticism shifts attention toward NZ inflation

US data revealed on Friday was mostly ignored by market participants. Even though the Fed revealed that Industrial Production in September grew 0.7% MoM above estimates and August’s 0.1% expansion, the focus was on inflation.

The release of US consumer inflation data, which exceeded estimates of 3.6% at 3.7% YoY, and on the producer front at 6.3% YoY, up a full percentage point from forecasts of 5.3%, did not raise the odds of a Fed October rate increase, as might have been expected.

The probability of a Fed rate hike is 16%, according to Prime Terminal data. Still, this favors further downside in NZD/USD, as US interest rates are 125 basis points higher than in New Zealand.

Several Fed officials, although penciling in two hikes for 2026, with the first having happened a month ago, said patience is needed, implying that a hike in Decembers is most likely than this month. Others, like Cleveland Fed Beth Hammack, have expressed concern that inflation has remained stubbornly high for five and a half years, above the 2% goal.

At the same time, Fed Chair Kevin Warsh disappointed investors by failing to provide guidance on future interest rates during a speech at the IMF forum on Friday, even though he acknowledged the strength of the US economy.

In New Zealand, the economic docket remained light but for the next week, the Trade Balance is expected on October 18, followed by the Consumer Price Index (CPI) for Q3 on a quarterly and yearly basis.

If next week's New Zealand CPI comes hotter than expected, this could prompt investors to fully price in an RBNZ rate hike at the October 28 meeting, with odds at 85% for a hold and 40 basis points of further tightening towards the end of the year.

Of note, for 2027, money markets had priced in 114 basis points of tightening towards the end of the year, reflecting the more hawkish central bank amongst the major currencies.

NZD/USD Price Forecast: Technical outlook

The NZD/USD price action shows that the pair bottomed around 0.5580-0.5600, triggering a rally to an 11-day high of 0.5674 before settling at current levels.

Even though all the daily Simple Moving Averages (SMAs) indicate a bearish bias, the Relative Strength Index (RSI) suggests that momentum is shifting bullishly, an indication that, although the downtrend is in place, we could be witnessing an early stage of a reversal.

If NZD/USD reclaims 0.5750, this could pave the way for a move toward the confluence of the 50- and 100-day SMAs, each at 0.5775-0.5781. This could open the door to challenge the 200-day SMA above the 0.5800 milestone at 0.5838.

For a bearish continuation, the NZD/USD must drop below the October 14 swing ow of 0.5564, towards the 0.5500 mark.