• NZD/USD weakens to around 0.5615 in Thursday’s early Asian session. 
• Closer New Zealand election race raises investor concerns over policy uncertainty. 
• Markets priced in a lower probability for an October Fed rate hike following the PCE inflation release.

The NZD/USD pair loses momentum to near 0.5615 during the early European trading hours on Thursday. The New Zealand Dollar (NZD) weakens against the US Dollar (USD) as the tighter New Zealand election race raises investor fears on policy backflips. Traders await the US weekly Initial Jobless Claims data and the Fedspeak later on Thursday. 

New Zealand’s reputation for political stability is facing a test as a closely contested election approaches on November 7, with opinion polls indicating that Prime Minister Christopher Luxon’s coalition could lose power. For investors, a change in government raises the prospect of policy uncertainty. If elected, Labour signaled that it would restore that dual mandate, among other policy reversals.

Remarks from Federal Reserve (Fed) policymaker John Williams and US Personal Consumption Expenditures (PCE) inflation data further dimmed the outlook for an October move. Fed’s Williams said on Tuesday that “With the policy action we took at our September meeting, there is no need for urgency, and we have time to gather more information.” 

This prompted traders to lean in favor of a rate hike in December over October, the CME Group’s FedWatch Tool showed. Markets are now pricing in nearly a 37.6% chance of a Fed rate hike in October and a 90.6% odds of an increase in December.

Kashkari questions policy tightness as resilient economy keeps Fed hawkish

Kashkari’s latest remarks score 7.1 on the FXS Speechtracker, notably above the 6.2 historical average, underscoring a firmer hawkish tone relative to the established baseline. By stressing that inflation near 3% remains “too high” and highlighting resilient growth, strong labor markets, and ongoing consumer spending, the speech points to limited urgency for rate cuts and openness to further tightening. Kashkari’s suggestion that the neutral rate may be higher and elevated “for now,” alongside penciling in one more hike this year and another in 2027, reinforces a higher-for-longer Dollar rate narrative despite hopes of achieving disinflation with only modest action.

The FXS Fed Sentiment Index slipped by 0.42 points to 143.28, signaling a slight pullback in perceived hawkishness even as the overall stance remains firmly in hawkish territory well above the 100 neutral mark. This combination of a strong FXS Speechtracker score and an elevated FXS Fed Sentiment Index level suggests that, despite some moderation, Fed communication continues to support a structurally higher Dollar rate environment.

Technical Analysis: NZD/USD retains a negative tone amid oversold conditions

In the daily chart, NZD/USD keeps a clear bearish bias as spot remains under the 100-day Simple Moving Average (SMA) and even below the Bollinger middle band. Price is only slightly above the Bollinger lower band support, highlighting a heavy downside tone, while the Relative Strength Index (14) at 24.15 sits in oversold territory, suggesting that although selling pressure is intense, short-term rebounds cannot be ruled out.

On the downside, immediate support is located at the Bollinger lower band around 0.5575, and a decisive break beneath this floor would open the way for a deeper slide toward the next psychological levels below 0.5550. On the topside, initial resistance emerges at the Bollinger middle band near 0.5738, followed by the 100-day SMA at 0.5810; as long as NZD/USD holds beneath these caps, any recovery is likely to be corrective rather than the start of a sustained bullish phase, with the Bollinger upper band at 0.5900 marking a more distant hurdle.