The NZD/USD currency pair has shown strength, trading around the 0.6250 mark during the Asian trading session on Monday. This uptick comes as traders anticipate further interest rate reductions by the Federal Reserve later this year. However, concerns over New Zealand’s economic performance could continue to weigh on the Kiwi dollar.
In the early hours of trading, the NZD/USD pair hovered near 0.6245, benefiting from the recent monetary policy announcements by the Federal Reserve. Last week, the Fed made a significant move by cutting its benchmark interest rate by 50 basis points, marking the first reduction in four years. This aggressive approach aims to prevent a slowdown in the US economy. Analysts predict that this rate cut is likely to be the first of several further reductions expected throughout the remainder of the year and into 2025. As a result, the US dollar may weaken, providing support to the NZD/USD pair.
Investors are also looking forward to the preliminary US Purchasing Managers Index (PMI) data for September, set to be released on Monday. Forecasts suggest a slight improvement in the Manufacturing PMI, expected to increase to 48.6 from 47.9 in August. Conversely, the Services PMI is projected to show a decline to 55.3 from 55.7. Additionally, speeches by influential Federal Reserve officials will be closely monitored for any insights into future policy direction.
Meanwhile, New Zealand’s economy is facing its own challenges, as indicated by the latest Gross Domestic Product (GDP) figures, which reflect a contraction of 0.2% in the second quarter. The outlook for New Zealand remains cautious, with expectations of a further weakening labor market suggesting a slow recovery ahead. This uncertain economic environment could limit the upside potential for the Kiwi dollar in the near term.
