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NZD/USD traded at around 0.6245 in Asia on Monday. The pair gained as investors digested last week’s sharp rate cut from the Federal Reserve.
The Federal Reserve decided to cut its benchmark interest rate by 50 basis points, the first rate cut in four years. The 50 basis point rate cut signals that the Federal Reserve is taking aggressive action to avoid a stagnation in the U.S. economy. Economists believe last week’s rate cut will be the first in a series of rate cuts this year and in 2025. According to FactSet, the market is expecting another interest rate cut from the Federal Reserve at its November or December meeting, which could continue to weaken the dollar and profitably increase NZD/USD.
Investors will get more clues from the preliminary reading of the U.S. Purchasing Managers Index (PMI) for September. The manufacturing PMI is expected to record 48.6 in September from the previous value of 47.9, while the services PMI is expected to record 55.3 from the previous value of 55.7. In addition, speeches by Federal Reserve officials Austan Goolsbee and Raphael Bostic also received close attention.
On the other hand, New Zealand’s GDP fell by 0.2% in the second quarter, shrinking again. Kim Mundy, economist at ASB Bank in Auckland, said: “Ongoing headwinds, including our expectations for further labor market weakness, suggest we are unlikely to see a rapid improvement in the economy. New Zealand’s fragile economic outlook “This could limit the New Zealand dollar’s upside in the short term.”
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