New Zealand Dollar strengthens despite decreasing RBNZ rate hike odds

NZD/USD inches higher after posting over 0.5% losses in the previous day, trading around 0.5600 during Asian hours on Wednesday. However, the upside for the currency pair could remain capped as the New Zealand Dollar (NZD) faces potential headwinds. A potential decline in oil prices is helping to curb inflationary pressures, which in turn reduces market expectations for future interest rate hikes by the Reserve Bank of New Zealand (RBNZ).

Meanwhile, market participants are keeping a close eye on ongoing coalition negotiations. Labor market leaders have highlighted National's Simeon Brown and Labour's Barbara Edmonds as the frontrunners for the Finance Minister role after incumbent Finance Minister Nicola Willis failed to retain her parliamentary seat.

The US Dollar (USD) may receive support against the New Zealand Dollar amid rising Federal Reserve (Fed) rate hike odds in December after the release of the latest US inflation data. According to the CME FedWatch Tool, markets are now pricing in approximately a 91% probability of a rate increase next month.

US Consumer Price Index rose 0.4% month-over-month in October, beating the 0.3% forecast even as it slowed from September's 0.6% gain. Meanwhile, Core CPI, which excludes food and energy prices, rose 0.3%, matching September's pace and topping the 0.2% estimate. The Bureau of Labor Statistics omitted annual figures for October due to last year's government shutdown.

Goolsbee flags ‘real inflation issue,’ lifting hawkish Fed tone and supporting the Dollar

Fed’s Goolsbee delivered a notably more hawkish tone, with an FXS Speechtracker score of 8/10, well above the 6.8/10 historical average, underscoring rising concern about persistent price pressures. The remark that the latest CPI was “borderline disturbing,” with services inflation “not coming down” and a “real inflation issue on our hands,” signals growing discomfort with sticky inflation and a lower tolerance for upside surprises. Emphasis that “everything is always on the table” and that the Federal Reserve “must get inflation down to target” reinforces the risk of renewed tightening or a longer-for-longer stance, a mix that is typically supportive for the Dollar and a headwind for risk-sensitive currencies.

The FXS Fed Sentiment Index rose by 1.69 points to 145.61, confirming a clear shift deeper into hawkish territory and aligning with the elevated FXS Speechtracker reading. With the index far above the neutral 100 mark, markets are likely to interpret Goolsbee’s comments as validating higher-for-longer rate expectations, which should underpin the Dollar while keeping pressure on the Euro, Yen, and other low-yielding currencies.