The NZD/USD currency pair is finding it hard to build on the slight recovery it saw the previous day, slipping a bit during the Asian session on Friday. That said, the spot prices remain above their lowest point since July 9, which was reached on Wednesday, and they’re hovering around 0.5730—showing little change for the day.
The Reserve Bank of New Zealand’s cautious approach seems to overshadow a surprisingly positive domestic GDP report that came out on Thursday. This cautious outlook appears to be a significant reason for the New Zealand Dollar’s relative weakness. On the flip side, the US Dollar is having a hard time attracting buyers, as US bond yields continue to decline from their multi-year highs. This decline is likely tied to easing concerns over runaway inflation, partly due to a slight drop in crude oil prices. Ultimately, these conflicting forces are keeping bearish traders from making aggressive moves, giving a slight lift to the NZD/USD pair.
However, the downside for the USD might not be too extensive, especially considering the Federal Reserve’s hawkish tone. For the first time in over three years, the Fed raised interest rates after the meeting in September. Additionally, the dot plot indicated that Fed officials anticipate one more rate hike before the year ends. There’s also an underlying anxiety about inflation driven by oil prices which supports the notion of more Fed tightening. Coupled with ongoing geopolitical uncertainties, this acts as a support for the safe-haven US Dollar and could limit any upward movement in the NZD/USD pair.
Looking ahead, traders are keenly awaiting some second-tier US macroeconomic data on Friday, including figures on Industrial Production and the Capacity Utilization Rate. Other influential factors will include speeches from key FOMC members and developments relating to the Middle East crisis, which are expected to impact the USD, and in turn, provide some momentum for the NZD/USD pair. Nevertheless, it appears that spot prices are on track to experience significant losses for the fourth consecutive week. The overall economic context seems to favor USD bulls, implying that any substantial recovery attempt may be met with selling pressure.
