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NZD/USD remains subdued around 0.5890 during early European trade. The pair’s weakness can be attributed to a stronger U.S. dollar (USD), which has been driven by caution ahead of the Federal Reserve’s (Fed) interest rate decision in December. Trading volumes are likely to remain light due to the U.S. Thanksgiving holiday.
The latest U.S. inflation data released on Wednesday showed solid growth in consumer spending in October, but also highlighted stalled progress in lowering inflation and kept the Federal Reserve on alert. The U.S. personal consumption expenditures (PCE) price index increased by 2.3% year-on-year in October, higher than the 2.1% increase in September. Meanwhile, the core PCE price index, which excludes volatile food and energy prices, rose 2.8% year over year, up slightly from 2.7% the previous month.
Futures traders are currently pricing in a 68.2% chance of a quarter-point rate cut by the Fed in December, up from 59.4% a day earlier, according to the CME FedWatch tool. However, they expect the Fed to keep rates on hold at its January and March meetings.
The New Zealand dollar may face headwinds as the United States (US) plans to implement new measures next week aimed at limiting China’s advances in artificial intelligence technology. Given New Zealand’s close trading relationship with China, any significant impact on the Chinese economy could have a knock-on effect on the New Zealand dollar.
On Wednesday, the Reserve Bank of New Zealand (RBNZ) cut its official cash rate (OCR) by 50 basis points from 4.75% to 4.25% at its November policy meeting. At a press conference after the meeting, RBNZ Governor Adrian Orr said that based on the bank’s forecasts, another 50 basis point cut may be expected in February 2025, but this will depend on economic activity. Orr also expressed confidence that domestic inflationary pressures will continue to weaken.
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