NZD/USD retraces two days of gains ahead of Fed decision, inches lower to near 0.6120
|- NZD/USD snaps a two-day winning streak ahead of Fed decision.
- Traders seem to have already factored in the expectation of no adjustments by the Fed in the January meeting.
- The risk aversion sentiment put downward pressure on the New Zealand Dollar.
NZD/USD consolidates after intraday losses, halting its two-day winning streak. The NZD/USD pair trades lower around 0.6120 during the early European session on Wednesday. The US Dollar (USD) is experiencing appreciation against the New Zealand Dollar (NZD), riding on positive momentum ahead of the Federal Reserve's (Fed) interest rate decision later in the day.
It appears that market participants have already factored in the expectation that the Fed will probably make no adjustments in its January meeting. This anticipation is influencing the strength of the US Dollar as investors position themselves in line with these expectations.
The US Dollar Index (DXY) has improved after three days of losses, reaching near 103.60, despite the decline in US Treasury yields. Both the 2-year and 10-year yields on US bond notes have lowered, standing at 4.31% and 4.00%, respectively, at the time of writing. This decline in US yields could exert pressure on the US Dollar.
The Reserve Bank of New Zealand (RBNZ) Chief Economist Paul Conway has adopted a hawkish stance, resisting expectations for rate cuts. In his statement on Tuesday, Conway expressed a cautious but optimistic outlook on the effectiveness of the current monetary policy measures.
The ANZ Business Confidence report for New Zealand shows a positive change in business outlook, with a rise to 36.6 in January from the previous reading of 33.2. This suggests an improvement in the sentiment among businesses regarding the economic environment. However, the ANZ Activity Outlook, which measures expectations for firms' own activity, registered a slight decrease. It came in at 25.6%, down from the prior reading of 29.3%.
While the overall Kiwi business outlook improved, the decline in the Activity Outlook may indicate a more cautious approach before making aggressive bets on the NZD/USD pair.
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