The NZD/USD currency pair remains under pressure, trading around 0.5625 during Friday’s Asian session, as a deepening recession in New Zealand raises expectations for further rate cuts by the Reserve Bank of New Zealand (RBNZ).
Weaker-than-expected Gross Domestic Product (GDP) data for New Zealand’s third quarter has fueled concerns about the economy, increasing the likelihood of aggressive interest rate cuts from the RBNZ. Market pricing now reflects a 91% chance of a 50 basis point (bps) reduction in the Official Cash Rate (OCR) in February.
Hamish Pepper, a fixed income and currency strategist at Harbour Asset Management, noted that the GDP data supports the RBNZ’s need to expedite rate cuts, aiming to bring the OCR to a more neutral level faster than initially anticipated in the November monetary policy statement.
Meanwhile, the US Dollar benefits from a hawkish tone following the Federal Reserve’s rate cut on Wednesday. Fed Chair Jerome Powell emphasized caution regarding future rate reductions, strengthening the USD and contributing to the NZD/USD pair’s decline.
Investors will focus on the release of the US Core Personal Consumption Expenditures (PCE) Price Index later Friday, with expectations for a 2.9% year-over-year increase in November.
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