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NZD/USD extended losses for the second day in a row, trading around 0.5860 during the European session on Thursday. The New Zealand dollar (NZD) faces challenges as expectations grow that the Reserve Bank of New Zealand (RBNZ) could make a drastic rate cut next week.
On Thursday, the New Zealand Treasury’s chief economic adviser, Dominick Stephens, said New Zealand would likely revise down its economic and fiscal forecasts due to a prolonged slowdown in productivity. This leaves investors fully expecting a 50 basis point rate cut in New Zealand, with a 75 basis point cut at the November policy meeting more likely at 12%.
UOB Group foreign exchange analysts Quek Ser Leang and Lee Sue Ann noted that while the New Zealand dollar (NZD) may see some upward movement, it is unlikely to reach $0.5960 in the short term. However, as long as NZD/USD remains above 0.5850, it may gradually move towards 0.5960 over time.
The U.S. dollar may appreciate further due to cautious comments from Federal Reserve (Fed) officials. Additionally, market expectations that the incoming Donald Trump administration will spur inflation will slow the Federal Reserve’s rate-cutting trajectory, providing support for the dollar.
Boston Fed Chair Susan Collins said on Wednesday that while more interest rate cuts are necessary, policymakers should be cautious and avoid moving too quickly or too slowly, Bloomberg reported. At the same time, Federal Reserve Governor Michelle Bowman emphasized that inflation has remained high over the past few months and emphasized the need for the Federal Reserve to be cautious in cutting interest rates.
Traders will be closely watching weekly U.S. jobless claims, the Philadelphia Fed manufacturing index and existing home sales, all due later on Thursday.
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