NZD/USD holds above 0.5760 as the US Dollar eases ahead of the Fed
- NZD/USD holds its ground near 0.5800 with all eyes on the Fed.
- A hawkish cut by the US Federal Reserve might provide some support for the US Dollar.
- The NZD lost some ground on Wednesday following the release of soft inflation data from China.
The New Zealand Dollar continues to hover below the 0.5800 resistance area on Wednesday, with bears contained above the 0.5750-0.5760 area for now. A somewhat softer US Dollar ahead of the Federal Reserve (Fed) supports the Kiwi’s consolidation near six-week highs.
The Greenback is pulling back against most peers, pressured by a moderate reversal on US Treasury yields, as investors square their positions ahead of the Fed’s decision.
The US central bank is widely expected to cut its benchmark interest rate by 25 basis points for the second consecutive time this year, leaving it in the 3.50-3.75 range within a deeply divided Monetary Policy Committee.
A "hawkish cut" by the Fed might support the USD
The main attraction of the event, thus, will be Jerome Powell’s press conference, where the central bank’s chairman is expected to deliver a hawkish counterpoint and might provide some support to the US Dollar. The upbeat employment figures seen on Tuesday and last week’s sticky inflation figures add reasons to think that way.
Beyond that, Investors will also be attentive to the Dot Plot, which will be contrasted with the market consensus of two to three more rate cuts in 2026.
The New Zealand Dollar pulled back during the early Asian session as inflation data from China failed to cheer investors. China’s consumer prices accelerated to a 0.7% year-on-year rate, the highest level in nearly two years, but monthly inflation contracted, and deflationary pressures at the factory gate deepened, feeding concerns about the weak domestic demand.
upbeat
China is New Zealand’s largest trading partner, and these figures have offset the positive impact of the upbeat trade balance data and the sharp increase in exports shown by the Asian leading economy earlier this week.
Fed FAQs
Monetary policy in the US is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability and foster full employment. Its primary tool to achieve these goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, it raises interest rates, increasing borrowing costs throughout the economy. This results in a stronger US Dollar (USD) as it makes the US a more attractive place for international investors to park their money. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates to encourage borrowing, which weighs on the Greenback.
The Federal Reserve (Fed) holds eight policy meetings a year, where the Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions. The FOMC is attended by twelve Fed officials – the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four of the remaining eleven regional Reserve Bank presidents, who serve one-year terms on a rotating basis.
In extreme situations, the Federal Reserve may resort to a policy named Quantitative Easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system. It is a non-standard policy measure used during crises or when inflation is extremely low. It was the Fed’s weapon of choice during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy high grade bonds from financial institutions. QE usually weakens the US Dollar.
Quantitative tightening (QT) is the reverse process of QE, whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing, to purchase new bonds. It is usually positive for the value of the US Dollar.
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