NZD/USD price gains as Fed policy easing expectations rise
NZD/USD climbs as Fed policy easing expectations boost sentiment
The NZD/USD pair extended its upward momentum for the second day, trading at 0.5660 during Monday’s Asian session. The pair’s performance was supported by subdued demand for the US Dollar following softer-than-expected US Personal Consumption Expenditures (PCE) Price Index data.
The core PCE, a preferred inflation gauge of the Federal Reserve, increased 2.8% year-over-year in November, below the anticipated 2.9%. On a monthly basis, core inflation rose by 0.1%, also missing estimates of 0.2%. This inflation moderation fueled expectations of a steady rate policy by the Fed in January, with the CME FedWatch tool indicating a 90% probability of no rate change.
NZD/USD price movement (Dec 2024) Source: TradingView.
New Zealand’s economic struggles could limit upside
Despite the New Zealand Dollar's recent gains, its upward trajectory faces challenges due to weak domestic economic data. The New Zealand economy contracted by 1.0% in Q3 on a quarter-over-quarter basis, marking the steepest recession since the COVID-19-induced downturn in 2020.
Annually, GDP shrank by 1.5%, underperforming market expectations of a 0.4% decline. The weak economic outlook has amplified market expectations of a 50 basis point rate cut by the Reserve Bank of New Zealand (RBNZ) in February, further capping gains for the Kiwi.
While the US Dollar weakness has provided temporary support to the NZD, external factors such as the performance of China’s economy and dairy prices—key drivers of New Zealand’s exports—remain crucial. As China is New Zealand's largest trading partner, any slowdown in the Chinese economy could weigh heavily on the NZD. Simultaneously, declining dairy prices could impact New Zealand's export revenue, exerting additional pressure on its currency.
The NZD/USD’s future trajectory hinges on the interplay of global market trends and domestic policy decisions. Traders should closely monitor upcoming RBNZ policy moves and global economic indicators for cues on further price direction.
In our previous analysis, we highlighted NZD/USD's significant losses, driven by weak GDP data and the RBNZ's aggressive policy stance. These factors remain pivotal in shaping the pair's outlook, underscoring the challenges facing the Kiwi in a volatile market.
