NZD/USD plunges to 0.6100 on risk-off mood, RBNZ’s dovish guidance

• NZD/USD drops vertically to 0.6100 on dismal mood, RBNZ signals peak for interest rates.
• The RBNZ sees inflation declining to the 1%-3% range by Q32024.
• Investors await the US core PCE price index data for fresh guidance.

The NZD/USD pair witnesses an intense sell-off amid multiple headwinds. The Kiwi asset plunges to the round-level support of 0.6100 due to dismal market sentiment and a dovish guidance from the Reserve Bank of New Zealand (RBNZ).

The RBNZ kept its Official Cash Rate (OCR) unchanged at 5.50% for the fifth time in a row to maintain downward pressures on sticky inflation. The central bank sees the consumer price inflation returning to the desired range of 1%-3% by the third quarter of 2024.

Meanwhile, chances of further policy tightening by the RBNZ have eased dramatically as it has warned about potential risks to the New Zealand economy. However, latest forecasts from the RBNZ show that no rate cuts are expected before 2025.

In addition to that, dismal market sentiment has weighed heavily on the New Zealand Dollar. The market mood has turned cautious as investors await the United States core Personal Consumption Expenditure price index (PCE) data for January, which will be published on Thursday. The underlying inflation data will provide more cues about when the Federal Reserve (Fed) will start reducing interest rates.

The consensus from economists shows that the core PCE price index grew by 0.4% on a month-on-month basis against a 0.2% increase in December. Annually, the underlying inflation data decelerated to 2.8% from 2.9% in December. Soft inflation data would prompt expectations of rate cuts by the Fed.