Recently, the New Zealand Dollar/U.S. Dollar (NZD/USD) trading pair continued to face selling pressure in the late Asian session on Wednesday, falling to 0.6040. This phenomenon was mainly due to investors becoming more cautious ahead of the Federal Reserve's interest rate decision, set to be announced at 18:00 Greenwich Mean Time, putting pressure on the NZD/USD pair.
Market analysis noted that the decline of the S&P 500 futures during the Asian session reflected a decrease in investors' risk appetite. Meanwhile, the U.S. Dollar Index (DXY) consolidated around 103.85, indicating that market investors generally adopted a wait-and-see attitude before the Fed's policy decision was announced.
Currently, the market widely anticipates the Fed to maintain interest rates between 5.25%-5.50% for the fifth consecutive time. This expectation of the interest rate policy, along with the uncertainty of rate cut forecasts, has limited the upside potential of risk-sensitive assets. Investors generally hope the Fed will support maintaining higher interest rates for a longer period, primarily considering the inflation rate remains high in February.
Additionally, the market will closely monitor updates to the Fed's dot plot. This chart is updated quarterly and provides predictions of interest rates over different periods, serving as an important reference for understanding the Fed's future policy orientation.
Meanwhile, the future trajectory of the New Zealand Dollar is expected to be influenced by New Zealand's GDP data for the last quarter of 2023. After shrinking by 0.3% in the third quarter of 2023, the market expects a slight economic growth of 0.1% in the last quarter.
Optimistic GDP data may support the Reserve Bank of New Zealand (RBNZ) in maintaining higher interest rates for a more extended period. However, if the GDP data falls short of expectations, indicating that New Zealand's economy is in a technical recession, the RBNZ will face a tough choice between curbing high inflation and addressing a fragile economic outlook.
