NZD/USD wobbles near 0.5970, investors await Fed policy, NZ Q2 GDP data

NZD/USD trades sideways around 0.5970 ahead of the Fed’s monetary policy outcome and NZ Q2 GDP data.
The Fed is expected to cut interest rates on Wednesday amid downside labor market risks.
The NZ economy is estimated to have contracted by 0.3% in the second quarter of the year.

Sagar Dua FXStreet

The NZD/USD pair trades in a tight range around 0.5970 during the late Asian trading session on Tuesday. Investors brace for significant volatility in the Kiwi pair as the Federal Reserve’s (Fed) monetary policy announcement and New Zealand’s (NZ) Q2 Gross Domestic Product (GDP) data are scheduled for Wednesday and Thursday, respectively.

In late Asian trading hours, the US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, trades close to a seven-week low near 97.10.

On Wednesday, the Fed is certain to start the monetary-easing campaign in the wake of growing United States (US) labor market risks.

According to the CME FedWatch tool, there is a 96% chance that the Fed will reduce interest rates by 25 basis points (bps) to 4.00%-4.25%, while the rest support a bigger reduction of 50 bps.

In Tuesday’s session, investors will focus on the US Retail Sales data for August, which will be published at 12:30 GMT. The US Retail Sales data is expected to come in lower at 0.3% on a monthly basis against the prior release of 0.5%.

In the NZ economy, the GDP growth is expected to have declined by 0.3% in the second quarter of the year after rising by 0.8% in the previous quarter. The scenario of contraction in the NZ GDP growth will boost market speculation for more interest rate cuts by the Reserve Bank of New Zealand (RBNZ) in the remainder of the year.

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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