The pair recorded its second worst day of the year on Wednesday and widens its losses today, to new 2023 lows, due to the dovish shock by the Reserve Bank of New Zealand. Policymakers raised rates by 25 basis points, to 5.5%, to what they now believe is the terminal rate. 
The RBNZ has been one of the most aggressive central banks and yesterday's hint that they are done raising rates, marks a watershed that surprised markets, which were expecting further tightening ahead.
At the same time, the US Dollar benefits form a hawkish repricing around the Fed's policy path. Earlier this month it had hinted to a pause of its tightening cycle at the June upcoming, while markets have been very dovish, anticipating multiple cuts ahead.
The latest commentary has cast doubt over these expectations, with Mr Waller yesterday for instance, appearing open to skipping a hike in June, but making crystal clear that he does not believe the terminal rate has been reached . More to it, the accounts of the last decision revealed that even though "several" participants thought "further policy firming after this meeting may not be necessary", "some" officials said that more tightening "would likely be warranted". 
CME's FedWatch Tool has pushed back the timing of rate cuts, now assigning the highest probability rates dropping to 5.00% in December (form 5.25% currently), while showing potential for another hike . Given the uncertaintly around the next moves, incoming data will be critical, with US PCE inflation standing out on Friday.
This reversal in the policy outlook around the Fed and the RBNZ is detrimental for NZD/USD, which sets new 2023 lows today and is exposed to 0.6025, although 0.5927-09 appears distant at this stage.
On the other hand, the Fed is still likely to pause next month, while RBNZ officials may have a hard time abiding by their estimate that the OCR has peaked, given the fact that inflation is far from the 1-3% target and the labor market very tight.
Furthermore, the relative Strength Index is at the most oversold levels since September, which can contain the fall at the current region and help NZD/USD rebound. However, a strong catalyst would be needed for the Kiwi to challenge the EMA200 (0.6230-5).
Senior Market Specialist
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 25 May 2023 https://www.rbnz.govt.nz/hub/news/2023/05/official-cash-rate-set-to-remain-restrictive
Retrieved 25 May 2023 https://www.federalreserve.gov/newsevents/speech/waller20230524a.htm
Retrieved 25 May 2023 https://www.federalreserve.gov/monetarypolicy/files/fomcminutes20230503.pdf
Retrieved 25 Sep 2023 https://www.cmegroup.com/markets/interest-rates/cme-fedwatch-tool.html