NZD/USD rises to near 0.6000 while investors seek fresh cues on Fed’s policy outlook
- NZD/USD moves higher to near 0.5990 as the US Dollar edges down.
- Fed’s Goolsbee supports several interest rate cuts if price pressures return to the 2% target.
- The RBNZ is confident of economic growth with inflation remaining steady.
The NZD/USD pair is up 0.16% to near 0.5990 during the Asian trading session on Friday. The kiwi pair gains as the US Dollar (USD) ticks up, while investors seek fresh cues on the United States (US) interest rate outlook.
During the press time, the US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, trades marginally down to near 97.75.
According to the CME FedWatch tool, traders are confident that the Federal Reserve (Fed) will leave interest rates unchanged in its policy meetings in March and April. The expectation for the Fed to avoid any monetary policy adjustment in the next two meetings has been prompted by inflation remaining above the central bank’s 2% target for a long period.
Chicago Fed President Austan Goolsbee said in an interview with Fox Business on Thursday that there could be several interest rate cuts this year if price pressures return to the 2% target. "I have some confidence rates can come down several more times this year in 2026," Goolsbee said, and added, "I just don’t want to front load it too much before we actually have the evidence that the inflation is headed" back down to the Fed’s 2% goal,” Reuters reported.
Meanwhile, the New Zealand Dollar (NZD) trades broadly stable even as traders doubt that the Reserve Bank of New Zealand (RBNZ) will hike interest rates in the near term. Hawkish RBNZ prospects have diminished as Governor Anna Breman said in the monetary policy announcement last week that the economy could continue to grow without triggering inflationary pressures.
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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