The NZD/USD pair is under significant pressure as it trades around 0.5625 in the early hours of Friday during the Asian session. The recent New Zealand Gross Domestic Product (GDP) data for the third quarter has fallen short of expectations, raising fears of a deeper recession and intensifying speculation that the Reserve Bank of New Zealand (RBNZ) will implement further aggressive interest rate cuts.
The disappointing GDP figures have led to a heightened consensus in the market, with a 91% probability of the RBNZ reducing rates by 50 basis points in February. This outlook has not only weakened the New Zealand currency but has also shifted focus toward the central bank’s strategy to bring the official cash rate back to a level that is seen as neutral, potentially more swiftly than previously anticipated.
In contrast, the USD is being bolstered by a hawkish tone from the Federal Reserve. Recent statements from the Fed highlighted a cautious approach towards additional rate reductions, which has lent support to the US dollar and exacerbated the downward pressure on the NZD/USD pair. The dynamics of these two currencies reflect a tug-of-war influenced by their respective central bank policies.
Later in the day, market participants will closely watch the release of the US Core Personal Consumption Expenditures (PCE) Price Index data, which is projected to show an annual increase of 2.9% for November. The outcome of this report could further impact USD performance and, consequently, the NZD/USD exchange rate as traders adjust their positions in response to potential shifts in economic sentiment.
