The New Zealand Dollar (NZD) continued its downward trajectory against the US Dollar (USD) on Friday, trading around 0.5830 during European hours. This marks the pair’s third consecutive day of losses, fueled by mounting expectations that the Reserve Bank of New Zealand (RBNZ) will enact a significant interest rate cut in its upcoming monetary policy meeting.
Markets are widely pricing in a 50-basis-point reduction in the RBNZ’s official cash rate to 4.25%, mirroring the cut from October. Some traders also see a 25% likelihood of an even steeper 75-basis-point cut, reflecting heightened concerns over New Zealand’s economic performance.
Adding to the bearish sentiment, Dominick Stephens, Chief Economic Adviser at New Zealand’s Treasury, warned on Thursday of potential downward revisions to economic and fiscal forecasts. He attributed this to a prolonged slowdown in productivity, further dampening market confidence in the NZD.
US Dollar Strength Weighs on NZD
Meanwhile, the US Dollar remains robust, with the US Dollar Index (DXY) climbing to a fresh yearly high of 107.20 in Friday’s European session. This surge follows stronger-than-expected US labor market data.
Last week’s Initial Jobless Claims fell to 213,000 for the week ending November 15, beating forecasts of 220,000 and improving from a revised 219,000 in the prior week. The data has fueled speculation that the Federal Reserve may slow the pace of its rate cuts, bolstering the USD.
Focus Shifts to PMI Data for Further Clues
Investors are now awaiting the US S&P Global PMI data, scheduled for release later in the North American session. Analysts expect the US Manufacturing PMI for November to rise slightly to 48.8 from 48.5, while the Services PMI is projected to climb to 55.3 from 55.0.
The outcomes of these PMI figures could provide additional insights into the health of the US economy and influence expectations regarding Federal Reserve policy decisions.
Outlook for NZD/USD
The NZD/USD pair remains under pressure as traders brace for next week’s RBNZ decision, which could define the pair’s medium-term trajectory. The growing divergence in monetary policy expectations between the RBNZ and the Federal Reserve is likely to sustain the USD’s advantage, keeping the NZD on the defensive in the near term.
With significant data releases and central bank actions looming, volatility is expected to remain elevated in the NZD/USD pair.
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