The NZD/USD pair has extended its upward momentum for a second consecutive day, trading around the monthly high of 0.6280 during Tuesday’s Asian session. This movement reflects an improved risk sentiment, largely driven by dovish signals from the Federal Reserve regarding its monetary policy.
The US Dollar is experiencing downward pressure following comments from Fed officials. Minneapolis Fed President Neel Kashkari indicated on Monday that he anticipates further interest rate cuts in 2024, although he expects these to be smaller than those implemented in September. Meanwhile, Chicago Fed President Austan Goolsbee stated that “many more rate cuts are likely needed over the next year,” emphasizing the need for significant reductions in rates, according to Reuters.
Federal Reserve policymakers project a total of 50 basis points in rate cuts by the end of 2024. The CME FedWatch Tool currently suggests a 50% probability of a cumulative 75 basis point reduction by year-end, which would bring the Fed’s target rate to a range of 4.0-4.25%.
Support for the New Zealand Dollar has also stemmed from recent stimulus measures by China, New Zealand’s largest trading partner. The People’s Bank of China (PBoC) injected CNY 74.5 billion in liquidity through a 14-day reverse repo, reducing the rate from 1.95% to 1.85%. Additionally, CNY 160.1 billion was provided via a 7-day reverse repo, maintaining the rate at 1.7%.
Looking ahead, the Reserve Bank of New Zealand (RBNZ) is expected to implement further rate cuts this year, with markets anticipating a 25 basis point reduction in October. Recent data indicated an economic contraction in New Zealand during the second quarter, underscoring ongoing economic challenges.
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