New Zealand Dollar edges higher on softer US yields, Fed hike bets cap recovery

NZD/USD traded around 0.5605 on Friday, posting a modest gain of 0.06% on the day while continuing to consolidate near recent lows. The New Zealand Dollar benefited from a slight improvement in market sentiment, supported by a temporary decline in US Treasury yields and easing oil prices. However, persistent strength in the US Dollar limited the pair's upside momentum. The improvement in risk appetite followed a strong US 30-year Treasury bond auction on Thursday, which attracted solid investor demand and helped push Treasury yields lower, giving some relief to risk-sensitive currencies including the NZD. Oil prices retreated after US President Donald Trump said on Truth Social that the United States would not attack Iran before the November midterm elections, temporarily easing geopolitical concerns. The recovery in sentiment remained fragile. Oil prices stayed elevated, keeping inflation risks in focus and reinforcing expectations of further Federal Reserve interest rate hikes. The US Dollar Index rebounded to around 102.25 after an intraday low of 101.92, while the 10-year US Treasury yield climbed back to 5.27% after briefly falling to about 5.22%. The US monetary policy outlook remains a major obstacle to a sustained NZD/USD recovery. Markets widely expect the Fed to keep rates unchanged at 3.75%-4.00% at its October 27-28 meeting, while pricing in an 85% chance of another hike in December. US data released Friday added to inflation concerns: the preliminary University of Michigan Consumer Sentiment Index fell to 46.3 in October from 48.1, missing expectations of 47.6, while one-year inflation expectations rose to 4.7% from 4.6% and five-year expectations increased to 3.5% from 3.4%. On the New Zealand side, monetary policy divergence continues to weigh on the Kiwi. The Reserve Bank of New Zealand kept its Official Cash Rate at 2.75%, well below the Fed's benchmark rate. This interest rate differential favors the US Dollar and reduces the relative appeal of the New Zealand currency. Westpac expects the RBNZ to hold at 2.75% in October, followed by a 25-basis-point hike in December and two more hikes in early 2027, suggesting New Zealand tightening may remain more gradual than in the US. Technically, on the four-hour chart, NZD/USD trades at 0.5608 and remains bearish near term below the 100-period SMA at 0.5655 and the 200-period SMA at 0.5759. Resistance is seen at 0.5626, 0.5649, 0.5655, 0.5686 and 0.5735, with the 200-period SMA near 0.5759. Support emerges at 0.5580 and 0.5540, with a break below those levels opening deeper downside. The RSI (14) around 49 suggests neutral momentum that has not challenged the prevailing downside bias.