Both the New Zealand Dollar (NZD) and Australian Dollar (AUD) experienced declines against the US Dollar (USD) during Asian trading hours on Wednesday, as markets braced for the US Federal Reserve's (Fed) interest rate decision later in the day. The NZD/USD pair extended its losses for the third consecutive day, trading around 0.5750, while the AUD/USD pair dropped to approximately 0.7120, reflecting broad USD strength amid expectations of a Fed rate hike [1][2].
Market participants are pricing in a nearly 92.4% probability that the Fed will raise interest rates by 25 basis points at its September policy meeting, according to the CME FedWatch tool [1][2]. Carol Kong, currency strategist at the Commonwealth Bank of Australia, noted that "a 25 basis-point increase is about 90% priced, implying the dollar will receive a modest boost if the Fed increases" [2]. Analysts at ABN Amro reiterated their base case for a 25bp hike, describing it as an insurance step rather than the start of a new tightening cycle, and highlighted that the August CPI report likely shifted the FOMC majority in favor of another increase [1].
The NZD faced additional downward pressure following the announcement that Reserve Bank of New Zealand (RBNZ) Assistant Governor Karen Silk, known for her hawkish stance, will exit in December. Silk's departure has unsettled market sentiment, with investors now projecting the official cash rate to rise from 2.75% to 3.0% by December and reach 3.75% by mid-2027, compared to the central bank's previous forecasted peak of 3.1% [1]. Meanwhile, New Zealand's consumer confidence rebounded in Q3 2026, with the Westpac McDermott Miller Consumer Confidence Index rising to 89.5 from 80.4, though it remains in pessimistic territory due to high fuel prices, elevated interest rates, and ongoing living cost pressures [1].
In Australia, the Reserve Bank of Australia (RBA) has kept the Official Cash Rate at 4.35% after three consecutive hikes earlier this year, but markets are pricing in a 78% probability of a further increase to 4.60% at the next RBA Board meeting due to persistent inflation [2]. The global bond sell-off has also impacted Australian yields, with 10-year yields jumping 8 basis points to 5.41% following US Treasury yields rising above 5% [2]. Technical analysis suggests that the AUD/USD retains a constructive bias in the near term, holding above key moving averages, though upside momentum is waning [2].
Fed Chair Kevin Warsh is expected to hold a press conference following the policy meeting. If Warsh downplays the risk of follow-up hikes, this could weigh on the Greenback, while hawkish remarks may further lift the USD against both the NZD and AUD [2].
CONCLUSION
The anticipation of a US Federal Reserve rate hike has driven significant strength in the US Dollar, resulting in declines for both the New Zealand and Australian Dollars. Market sentiment remains cautious, with further rate increases expected from both the RBNZ and RBA amid persistent inflationary pressures. The outcome of the Fed meeting and subsequent remarks from Chair Warsh will be closely watched for additional market direction.