NZD/USD Outlook: Kiwi Tests Resistance as Confidence Rebounds

NZD/USD is showing early signs of stabilisation as improving domestic sentiment begins to shift the fundamental backdrop in favour of the Kiwi. A sharp rebound in business confidence, combined with a gradual repricing of RBNZ policy expectations, is helping ease one of the key headwinds that has weighed on the currency over the past year. With price now testing downtrend resistance, attention is turning to whether improving fundamentals can translate into a technical breakout.

Business Confidence Surges, Recovery Still Early

New Zealand business confidence surged to its highest level in more than a decade in the latest NZIER survey, marking a notable turning point in sentiment. Hiring and investment intentions rose sharply from the September quarter, with a net 22% of firms planning to add staff and capital spending intentions turning positive after a prolonged slump.

That said, the improvement in confidence has yet to fully translate into stronger activity. Firms continue to report subdued trading conditions, suggesting the recovery remains in its early stages despite significantly lower domestic interest rates. In other words, optimism is rising faster than realised growth.

Labour market signals remain mixed. Skilled labour is becoming harder to source, while unskilled labour remains readily available. This dynamic matters for wage pressures, but for now, excess capacity in sectors such as construction is keeping inflation risks contained. Construction firms continue to report widespread price discounting, underlining the degree of slack that still exists in one of the most rate-sensitive parts of the economy.

Inflation indicators within the survey remained soft overall. While some firms have raised prices, the trend remains modest and uneven, giving the RBNZ time to assess whether improving sentiment evolves into sustained inflation pressure.

RBNZ Expectations Shift from Drag to Support

Interest rate expectations are slowly turning from a headwind into a potential tailwind for the Kiwi. Swaps markets continue to price the RBNZ cash rate holding at 2.25% through the first half of 2026, but the probability of the first hike is now slightly tilted toward September. By year-end, a full 25 basis point hike is priced, with a growing chance of a second move.

With a large volume of fixed-rate mortgages set to roll onto much lower rates in coming months, household and business cash flow dynamics could improve more quickly than headline growth data suggests. This creates a scenario where policy normalisation may arrive earlier than currently expected, unless a meaningful external shock emerges.

Falling interest rates were a clear drag on the Kiwi over the past year, particularly when compared with the Australian dollar. With markets now pricing hikes rather than further cuts, the marginal policy shift should offer some support, especially as the US outlook still leans toward easing. Beyond rates, broader risk appetite and developments tied to China remain important swing factors for NZD performance.

Technical Setup: Falling Wedge in Focus

From a technical perspective, NZD/USD is testing downtrend resistance within what appears to be a falling wedge formation. This structure often precedes bullish reversals, provided resistance is cleared decisively.

The key level to watch sits near 0.5780. A sustained break and hold above this zone would improve the case fo r long exposure, with scope for a retest of December highs near 0.5843. The 0.5800 handle remains an important area to monitor, given the pair’s tendency to gravitate toward round numbers. Failure to hold above this level would raise the risk of a false breakout.

Momentum indicators are not yet delivering a strong signal. Oscillators point to fading upside strength overall, but there are early signs that momentum is beginning to turn higher. A continuation of this shift would improve the probability that a breakout attempt can stick.

Key Catalyst Ahead

In the near term, US CPI represents the most immediate catalyst for NZD/USD. A softer inflation outcome would likely favour Kiwi upside, while a firm print could delay any breakout attempt. As a result, price action following the data release should be treated as more informative than moves ahead of it.

Overall, NZD/USD is transitioning from a purely technical recovery into a setup supported by improving domestic fundamentals. Confirmation above resistance remains essential, but the balance of risks is becoming more constructive for the Kiwi.