The NZD/USD pair has shown a modest recovery, climbing to approximately 0.5865 in Thursday’s Asian trading session. This movement comes as the US Dollar experiences a slight downturn, although the overall weakness in the Greenback may remain constrained due to the cautious stance adopted by the Federal Reserve. As traders await the release of weekly Initial Jobless Claims data, all eyes are on the upcoming Nonfarm Payrolls report.
Market expectations suggest that the Federal Reserve is likely to implement an additional quarter-point reduction in its benchmark interest rate, currently set between 4.5% and 4.75%. The central bank has already cut rates by a cumulative three-quarters of a point during meetings in September and November. However, recent comments from several Fed officials highlight concerns over rising inflation, suggesting a more careful approach as they monitor incoming economic data. This could potentially bolster the dollar, creating headwinds for the NZD/USD pair.
The latest Beige Book survey from the Fed indicates a slight uptick in US economic activity during November, following a period of stagnation. Moreover, there has been a more optimistic outlook from US businesses regarding demand, which reinforces the notion that the US economy may be performing better than previously anticipated. Federal Reserve Chair Jerome Powell’s insights imply that this improved economic outlook could allow for a tempered approach to interest rate cuts moving forward.
In contrast, the Reserve Bank of New Zealand is signaling a possible shift towards further monetary easing. The comments from the RBNZ’s leadership, combined with disappointing domestic economic indicators, are putting pressure on the Kiwi. Traders are currently estimating a nearly 68% chance of a 25 basis points rate cut occurring in February 2025, which could weigh on the New Zealand dollar as market sentiment evolves.
