The Reserve Bank of New Zealand has been the torchbearer of monetary tightening, having started more than two years ago - way ahead of its major counterparts. It has stayed on the sidelines over the summer though and kept rates at 5.5% for the fourth straight meeting on Wednesday. Despite standing pat again, there was a hawkish shift in its stance. Policymakers warned that rates "would likely need to increase further" if inflationary pressure are stronger than expected and raised their terminal rate forecast to 5.7%, implying more hikes.
At the same time, the US Fed has become less aggressive and recent economic releases have raised the bar for further tightening. Markets believe that rates have already peaked and focus on the timing of the first cut. CME's FedWatch Tool assigns the highest probability of this outcome materializing in May. 
NZD/USD has rallied from the October 2023 lows and heads toward its best month of the year, while yesterday's hawkish hold by the central bank of New Zealand helped it extend the gains. It now tries to take out 0.6248, although challenging 0.6412 has a higher degree of difficulty.
On the other hand, RBNZ Governor Orr toned-down the hawkish messaging in his press conference, causing the pair to erase much of Wednesday's gains. Moreover, the Fed may still need to do more to restore price stability. Inflation is far from the 2% target, the labor market strong despite coming to better balance and the economy continues to outperform. Yesterday's preliminary data showed Q3 GDP growth of 5.2%, the best in nearly two years.
Furthermore, the NZD/USD advance looks stretched technically and there is scope for a pullback towards the EMA200 (0.5990), but strong catalyst would be required for a breach. In any case, the next leg of the move will be determined by today's US PCE inflation update.
Senior Financial Editorial Writer
Nikos Tzabouras is a graduate of the Department of International & European Economic Studies at the Athens University of Economics and Business. He has a long time presence at FXCM, as he joined the company in 2011. He has served from multiple positions, but specializes in financial market analysis and commentary.
With his educational background in international relations, he emphasizes not only on Technical Analysis but also in Fundamental Analysis and Geopolitics – which have been having increasing impact on financial markets. He has longtime experience in market analysis and as a host of educational trading courses via online and in-person sessions and conferences.
Retrieved 21 Feb 2024 https://www.cmegroup.com/markets/interest-rates/cme-fedwatch-tool.html