- NZD/USD has printed a fresh two-year low at 0.5619 on expectations of a hawkish Fed Powell’s speech.
- The Fed's current pace of hiking interest rates is expected to slow down.
- Kiwi’s Buildings Permit data is seen lower at 2% vs. the prior release of 5%.
The NZD/USD pair has slipped below the most traded auction area, which is in a range of 0.5624-0.5722 in the Asian session. The asset has refreshed its two-year low at 0.5619 and is expected to display more weakness amid negative market sentiment. The major is expected to find a cushion around 0.5476 as the speech from Federal Reserve (Fed) chair Jerome Powell will further spook the market participants' sentiment.
As the Fed is bound to curtail the galloping inflationary pressures, the discussion will be more on hiking interest rates at the ongoing pace. The current pace of hiking interest rates is firmer and will continue this year.
Considering the deviation in current rates of 3-3.25% and the optimal terminal rate at 4.6%, the Fed is required to elevate its interest rates further to 1.35% by the conclusion of 2023. Two monetary policies are still to be announced in 2022 scheduled in November and December. A continuation of the current pace of hiking will cover the deviation in 2022 only. Therefore, the Fed is expected to slow down its current pace of hiking interest rates and will make gradual steps from now.
Meanwhile, the US dollar index (DXY) has recaptured its elevated arena after lower-than-expected US Durable Goods Orders data. The decline in demand for Durable Goods was recorded lower at 0.2% than the expectations of a decline of 0.4%. There is no denying that accelerated interest rates will affect durables demand, so a lesser-than-expected decline is healthy for the economy.
On the kiwi front, the release of the monthly Building Permits data will be a key trigger. The economic data is expected to trim to 2% against the prior print of 5%. A lower-than-expected figure will weaken the antipodean.
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