NZD/USD declines towards 0.6150 as Fed to keep interest rates higher this year

The NZD/USD pair is declining towards the crucial support of 0.6150 as investors are expecting that the Federal Reserve (Fed) will not cut interest rates this year. The Kiwi asset is falling like a house of cards as the New Zealand administration is worried about the domino effects of higher interest rates by the Reserve Bank of New Zealand (RBNZ).

S&P500 futures have generated significant losses in Asia. US markets were closed on Monday therefore a volatile action is expected due to the extended weekend. The overall market mood is cautious that has trimmed appeal for risk-sensitive assets.

The US Dollar Index (DXY) is moderately climbed to near 102.60. A monetary policy statement delivered by Federal Reserve (Fed) chair Jerome Powell indicated that two interest rate hikes are in the pipeline and rate cuts are not appropriate this year. The street is convinced that the Fed will keep interest rates higher this year as inflationary pressures are twice the desired rate of 2% but will announce only one more interest rate hike as the economic outlook of the United Kingdom economy seems dismal.

Meanwhile, the NZ economy has already slipped into a technical recession. Q1 Gross Domestic Product (GDP) contracted by 0.1% followed by a 0.7% contraction registered in the prior quarter.

NZ Treasury has criticized higher interest rates from the RBNZ as the extremely restrictive monetary policy has dampened domestic demand.

Investors should note that RBNZ Governor Adrian Orr has raised interest rates to 5.50%, higher than interest rates in the US economy.