Dollar Holds Two-Week High Into Fed Decision as Surprise RBNZ Hold Sinks the Kiwi

The US dollar held near a two-week high on Wednesday, October 28, as traders positioned for the Federal Reserve decision due later in the day. The dollar index, which tracks the greenback against six major currencies, sat at 102.40, around its strongest since October 14, after rising 0.3% on Tuesday. The euro was flat at $1.1124, sterling slipped 0.1% to $1.32945, and the dollar was little changed against the yen at 157.945. The yield on the 10-year US Treasury bond stood at 5.0112%, a level that rewards holding dollars over lower-yielding rivals.

The sharpest move of the Asian session came from New Zealand, where the Reserve Bank of New Zealand unexpectedly left its official cash rate at 2.75%. A Reuters poll had found 22 of 27 economists expecting a hike, so the decision caught the market wrong-footed and the kiwi sank as much as 1.7% to an intraday low of $0.55831. Governor Anna Breman later softened the blow, saying the rate-setting committee still expected further increases in coming meetings, possibly higher than signalled in September. Analysts at Capital Economics read the decision as a delay rather than a cancellation of tightening, while warning market pricing had looked too aggressive.

Across Asia, the strong dollar kept most regional currencies on the back foot. Of ten currencies tracked, seven fell, two rose and one was unchanged. The South Korean won dropped 0.92% to 1,338.5 per dollar, the Indonesian rupiah slipped 0.14% to 18,170, close to its record intraday low of 18,190, and the Philippine peso, Thai baht, Singapore dollar, Vietnamese dong and Chinese yuan all eased. The exceptions were the Malaysian ringgit, up 0.12%, and the Taiwan dollar, up 0.02%. India offered a small contrast: the rupee edged up 4 paise to 95.03 from a previous close of 95.07, even as traders warned of a negative bias with Brent crude near $115.44 a barrel.

The striking feature of the session is how little the Fed itself needs to move markets. Futures markets put the chance of a hold at about 91%, keeping the federal funds range at 3.75% to 4.00%, so the decision is almost fully priced in. What traders are really trading is the guidance: any shift in how likely a December increase looks could move the dollar sharply in either direction, which is why Chair Kevin Warsh’s press conference will matter more than the rate announcement itself. The Fed is not the only central bank in the spotlight. The Bank of Canada also decides on Wednesday, with money markets pricing a 77% chance of a 25-basis-point increase, although economists polled by Reuters were more divided, with 19 of 34 expecting a hike. In Australia, the dollar firmed 0.1% to $0.70345 after third-quarter inflation came in at 1.3%, up from 0.6%, ahead of a Reserve Bank of Australia meeting next week.

For traders watching from Pakistan and beyond, the lesson is that surprises now come from central banks nobody is watching, not only the Fed. A single unexpected hold wiped more than a percent off the kiwi in hours, while a steady drip of dollar strength pressed on Asian currencies that import energy priced in dollars. The next tests arrive in quick succession: the Fed statement and press conference, the Bank of Canada decision, and next week’s Reserve Bank of Australia meeting. Until that sequence clears, expect tight ranges in the majors and sudden jumps in smaller currencies. Our forex section explains how central-bank decisions move currency pairs, and the forex tools include calculators for sizing positions when volatility spikes. (Not financial advice.)