Home · Business · Oct 16 archive
NZ Dollar Rises as Fed Chair Warsh Avoids Rate Hike Preview
Confirmed
In Short: The New Zealand Dollar (NZD) rose to near 0.5650 on Friday, as Federal Reserve Chair Kevin Warsh avoided giving any preview of the central bank's October 27-28 meeting decision on interest rates.
The New Zealand Dollar (NZD) rose to near 0.5650 on Friday, as Federal Reserve Chair Kevin Warsh avoided giving any preview of the central bank's October 27-28 meeting decision on interest rates. Warsh, speaking in Bangkok, said he does not 'prejudge' rate decisions, indicating a cautious approach to monetary policy.
Warsh's speech scored 5.6/10 on the FXS Speechtracker, slightly below the established baseline of 6.1/10, suggesting a less impactful tone despite steady policy messaging. This cautious stance has reduced the likelihood of a 25 basis point rate increase at the October meeting to around 60%, according to market expectations.
The US Producer Price Index (PPI) rose by 6.3% year-on-year in September, higher than the 5.6% increase in August and above the expected 5.3% rise. This inflation data has increased the odds of a rate hike, with traders now pricing in a 27.7% probability of an October hike, up from 41.5% earlier in the month.
Reserve Bank of New Zealand (RBNZ) Chief Economist Paul Conway said the interest rate decision in late October is 'wide open' despite rising inflation pressures. This uncertainty has contributed to the NZD's strength against the US Dollar (USD), which faces selling pressure following Warsh's remarks.
On the topside, initial resistance for the NZD/USD pair emerges at the upper Bollinger Band around 0.5710, with a more significant barrier at the 100-period MA at 0.5780. As long as the pair remains under these levels, rallies are likely to be seen as corrective rather than the start of a sustained uptrend.
Warsh's cautious bias on financial stability, despite highlighting structural growth and an investment surge driven by 'good policies,' suggests a guarded hawkish stance on output, employment, and inflation. This guarded approach is in line with the central bank's focus on delivering price stability.
The US Dollar Index (DXY) gained to 99.60 on Tuesday, driven by higher US yields, while the 10-year US Treasury yield touched 5.04% for the first time since 2007, pulled higher by a near 4% jump in oil prices. This surge in energy costs has revived inflation worries just as the Fed prepares to decide on rates.
GBP/USD stayed on the back foot near 1.3480, unable to make headway ahead of Wednesday's UK inflation report and the Fed decision. The move largely priced in, the reaction will hinge less on the decision itself than on the updated economic projections, the dot plot, and Chair Kevin Warsh's guidance on whether more tightening is coming.
What this adds
The admission of being 'over-scarred from the global financial crisis' underscores a cautious bias on financial stability, even as Warsh highlights structural growth and an investment surge driven by 'good policies,' suggesting a guarded hawkish stance on output, employment, and inflation ahead of the October and December meetings.
An October hike would produce 4.00% to 4.25%, per the Boston Globe.
Background
"We made very clear we’d deliver price stability," Warsh said Friday morning in Bangkok, indicating his focus on inflation and the likelihood of another interest rate hike in the near future.
What's confirmed
- The New Zealand Dollar (NZD) rose to near 0.5650 on Friday, as Federal Reserve Chair Kevin Warsh avoided giving any preview of the central bank's October 27-28 meeting decision on interest rates. Warsh, speaking in Bangkok, said he does not 'prejudge' rate decisions, indicating a cautious approach to monetary policy.
- Warsh's speech scored 5.6/10 on the FXS Speechtracker, slightly below the established baseline of 6.1/10, suggesting a less impactful tone despite steady policy messaging. This cautious stance has reduced the likelihood of a 25 basis point rate increase at the October meeting to around 60%, according to market expectations.
- The US Producer Price Index (PPI) rose by 6.3% year-on-year in September, higher than the 5.6% increase in August and above the expected 5.3% rise. This inflation data has increased the odds of a rate hike, with traders now pricing in a 27.7% probability of an October hike, up from 41.5% earlier in the month.
- Reserve Bank of New Zealand (RBNZ) Chief Economist Paul Conway said the interest rate decision in late October is 'wide open' despite rising inflation pressures. This uncertainty has contributed to the NZD's strength against the US Dollar (USD), which faces selling pressure following Warsh's remarks.
- On the topside, initial resistance for the NZD/USD pair emerges at the upper Bollinger Band around 0.5710, with a more significant barrier at the 100-period MA at 0.5780. As long as the pair remains under these levels, rallies are likely to be seen as corrective rather than the start of a sustained uptrend.
- Warsh's cautious bias on financial stability, despite highlighting structural growth and an investment surge driven by 'good policies,' suggests a guarded hawkish stance on output, employment, and inflation. This guarded approach is in line with the central bank's focus on delivering price stability.
- The US Dollar Index (DXY) gained to 99.60 on Tuesday, driven by higher US yields, while the 10-year US Treasury yield touched 5.04% for the first time since 2007, pulled higher by a near 4% jump in oil prices. This surge in energy costs has revived inflation worries just as the Fed prepares to decide on rates.
- GBP/USD stayed on the back foot near 1.3480, unable to make headway ahead of Wednesday's UK inflation report and the Fed decision. The move largely priced in, the reaction will hinge less on the decision itself than on the updated economic projections, the dot plot, and Chair Kevin Warsh's guidance on whether more tightening is coming.
What's still developing
- The NZD/USD pair rises to around 0.5650 during the Asian trading hours on Friday.
- This figure registered the largest increase since 2022 and was higher than the expectation of an increase of 5.3%.
- UBS ( NYSE:UBS ) analyst Simon Penn wrote Sept. 29, before the CPI report, that an October hike on the eve of a midterm, absent for 35 years, was “politically untenable,” and expected December.
- The FedWatch tool from CME Group ( NASDAQ:CME | CME Price Prediction ) priced an October hike at 41.5% at 12:20 PM ET on Oct.
- An October hike would produce 4.00% to 4.25%, per the Boston Globe.
- Capital Economics’ Stephen Brown called core upside broad based, putting October in play, and forecasts two more quarter-point hikes.
- On Friday, October 16, US stocks declined as tech and AI-related shares extended losses amid concerns over Chinese semiconductor competition and debt-funded AI infrastructure expansion.
- TradingKey - On Friday, October 16, ET, US stocks moved lower as tech and artificial intelligence (AI)-related shares extended this week's losses.
- In a moderated discussion Friday morning in Bangkok at the International Monetary Fund’s annual meetings, Warsh made no remarks on monetary policy or his outlook for the US economy, apart from reiterating that the Fed will deliver price stability.
- Reuters reported Oct. 3 that the Fed may skip October for December.
- The table below shows the percentage change of US Dollar (USD) against listed major currencies today.
- EUR/USD drifted lower through the session, hovering near the 1.1540s as the firmer Dollar kept it pinned before the Fed.