NZD/USD picks up above 0.5950 as the US Dollar eases ahead of the Fed

The New Zealand Dollar edges up, favoured by a mild USD correction with investors bracing for the Fed decision.
The Fed is widely expected to keep rates on hold at the 4.25%-4.50% range.
Somewhat earlier, a significant rebound of the US Q2 GDP might provide support for a hawkish Fed stance.

Guillermo Alcala FXStreet

The New Zealand Dollar is showing a mild recovery attempt against its US counterpart, trimming losses after a four-day losing st¡treak, as investors brace for the US Federal Reserve’s monetary policy decision due later today.

The Kiwi picked up from 0.5945 lows but remains trapped within Tuesday’s range so far, with upside attempts capped at 0.5970. From a wider perspective, the pair has been moving back and forth within the last two months' range, roughly between 0.5900 and 0.6100.

US Dollar is seen a slight profit-taking ahead of the Fed decision. The bank is widely expected to leave rates at the current 4.25%-4.50% range, but investors will be eager to know more about September’s decision.

Futures markets are pricing a 65% chance of a rate cut after the summer, but recent data confirmed that the US economy remains resilient, which gives more leeway for the bank to keep its cautious stance until the economic impact of tariffs is evidenced. The risk is high for a hawkish message that might give an additional boost to the USDollar.

Somewhat earlier, the preliminary US GDP is expected to show that the US economy grew at a 2.4% in the second quarter after a 0.5% contraction in the first one, providing further support to the Fed to keep interest rates higher for a longer time.

Economic Indicator

Gross Domestic Product Annualized

The real Gross Domestic Product (GDP) Annualized, released quarterly by the US Bureau of Economic Analysis, measures the value of the final goods and services produced in the United States in a given period of time. Changes in GDP are the most popular indicator of the nation’s overall economic health. The data is expressed at an annualized rate, which means that the rate has been adjusted to reflect the amount GDP would have changed over a year’s time, had it continued to grow at that specific rate. Generally speaking, a high reading is seen as bullish for the US Dollar (USD), while a low reading is seen as bearish.

Why it matters to traders?

The US Bureau of Economic Analysis (BEA) releases the Gross Domestic Product (GDP) growth on an annualized basis for each quarter. After publishing the first estimate, the BEA revises the data two more times, with the third release representing the final reading. Usually, the first estimate is the main market mover and a positive surprise is seen as a USD-positive development while a disappointing print is likely to weigh on the greenback. Market participants usually dismiss the second and third releases as they are generally not significant enough to meaningfully alter the growth picture.

Economic Indicator

Fed Interest Rate Decision

The Federal Reserve (Fed) deliberates on monetary policy and makes a decision on interest rates at eight pre-scheduled meetings per year. It has two mandates: to keep inflation at 2%, and to maintain full employment. Its main tool for achieving this is by setting interest rates – both at which it lends to banks and banks lend to each other. If it decides to hike rates, the US Dollar (USD) tends to strengthen as it attracts more foreign capital inflows. If it cuts rates, it tends to weaken the USD as capital drains out to countries offering higher returns. If rates are left unchanged, attention turns to the tone of the Federal Open Market Committee (FOMC) statement, and whether it is hawkish (expectant of higher future interest rates), or dovish (expectant of lower future rates).

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