The NZD/USD pair is experiencing upward movement, supported by growing expectations that the Federal Reserve will initiate gradual policy easing in 2025. Recent data suggests there is a nearly 90% likelihood that the Fed will maintain interest rates at their current level in January. However, the New Zealand Dollar may face depreciation as forecasts indicate a 50 basis point rate cut by the Reserve Bank of New Zealand (RBNZ) is likely in February.
During the Asian trading session on Monday, NZD/USD rose for the second consecutive day, trading around 0.5660. The US Dollar remained under pressure following the release of Personal Consumption Expenditures Price Index (PCE) data, which revealed that core PCE inflation for November increased by 2.8% year-over-year, falling short of the 2.9% expected. Month-over-month core inflation grew by a modest 0.1%, also below estimates of 0.2%, reflecting a slowdown in price increases.
The muted inflation data has reinforced market sentiment that the Federal Reserve might slow its pace of interest rate adjustments in the future. Current projections indicate a strong belief that the Fed will keep interest rates within the 4.25% – 4.50% range in January, given the lack of inflationary pressure.
On the other hand, the prospects for the New Zealand Dollar appear constrained by disappointing economic performance. Recent GDP figures revealed a 1.0% quarter-over-quarter contraction for Q3, improving slightly from a revised 1.1% decline in Q2 but significantly worse than the anticipated 0.4% drop. Year-over-year, GDP fell by 1.5%, which was more severe than previous estimates and signals a deeper recession than previously thought. As a direct result of these weakened economic indicators, expectations have mounted for more aggressive monetary policy easing by the RBNZ, with a substantial rate cut expected at their next meeting.
