Anna 
In the late Asian session on Wednesday, the NZD/USD pair encountered a sell-off, declining to 0.6040 as investors exercised caution ahead of the Federal Reserve’s (Fed) impending interest rate decision, scheduled for announcement at 18:00 GMT.
The Kiwi asset remains under pressure amidst a backdrop of declining risk appetite, as evidenced by losses in S&P 500 futures during the Asian session. Concurrently, the US Dollar Index (DXY) consolidates around 103.85, as market participants adopt a wait-and-see approach ahead of the Fed policy announcement.
Expectations are widespread that the Fed will maintain interest rates unchanged within the range of 5.25%-5.50% for the fifth consecutive time. However, uncertainty looms over rate-cut projections, which may constrain the upside potential for risk-sensitive assets. Investors are hopeful that the Fed may opt to sustain higher interest rates for a prolonged period, given the persistent inflationary pressures observed in February.
The dot plot, updated quarterly to display interest rate projections across various timeframes, will be closely scrutinized by investors for insights into the Fed’s policy trajectory.
Looking ahead, the trajectory of the New Zealand Dollar will be influenced by domestic Gross Domestic Product (GDP) data for the final quarter of 2023. Economists anticipate a marginal expansion of 0.1%, following a 0.3% contraction in the third quarter of 2023.
A positive GDP outcome would potentially enable the Reserve Bank of New Zealand (RBNZ) to maintain higher interest rates for an extended period. Conversely, a decline in GDP figures may signal technical recessionary conditions in the New Zealand economy, placing the RBNZ in a challenging position to balance between combating inflationary pressures and addressing economic vulnerabilities. Market participants will closely monitor these developments for guidance on the NZD/USD pair’s future direction.
