Ella 
In Asia on Wednesday, the NZD/USD pair interrupted two consecutive gains and fell to around 0.6120. Market participants remain cautious as tensions rise in the Middle East, with the market maintaining overall risk aversion further weighing on NZD/USD. Markets expect that U.S. President Joe Biden’s administration may authorize a military strike in response to recent drone attacks on U.S. outposts in Jordan.
In terms of economic indicators, the ANZ Business Confidence Report showed that New Zealand’s business prospects have improved, with New Zealand’s ANZ Business Confidence Index rising to 36.6 in January from the previous value of 33.2. However, New Zealand’s ANZ business activity outlook index fell slightly to 25.6% in January from the previous value of 29.3%.
However, RBNZ chief economist Paul Conway took a hawkish stance and postponed expectations for a rate cut. In a statement on Tuesday, Conway said he was cautious but optimistic about the effectiveness of current monetary policy measures.
U.S. Treasury yields fell, and the U.S. dollar index (DXY) encountered challenges. The Federal Open Market Committee (FOMC) is widely expected to keep interest rates in a range of 5.25-5.50% at its meeting on Wednesday. At the Federal Reserve’s (Fed) meeting in December, officials expected the Fed to cut interest rates three times in 2024. Market participants are eagerly awaiting a speech by Federal Reserve Chairman Jerome Powell to signal the outlook for interest rate policy.
Interest rate swaps markets continued expectations for a rate cut from the Fed, with the CME FedWatch tool showing a 43% chance of a first rate cut in March. By contrast, back in December, swaps markets initially suggested a greater than 80% chance of a rate cut in March. Additionally, there is a 53% chance of a 25 basis point rate cut in May. Investors will pay close attention to changes in U.S. ADP employment numbers on Wednesday ahead of the U.S. non-farm payrolls report later this week.
