New Zealand dollar soars ahead of expected Fed pause

• Fed is widely expected to hold off increasing rates
• New Zealand GDP is expected to decline marginally
• NZD/USD jumps 1.3%

The New Zealand dollar has surged today as the markets anxiously await the Fed rate decision later in the day. In the North American session, NZD/USD is trading at 0.6229, up 1.36%.

Will Fed pause as expected?

All eyes are fixated on the Federal Reserve, which is widely expected to pause its rate hikes after increasing rates ten straight times. The markets have had a tough time in recent weeks trying to figure out the Fed’s rate path, having priced in a pause, then a rate hike and back again to a pause. Tuesday’s inflation report appears to have cemented a pause, as traders have priced in a 98% probability of a pause, according to the CME’s FedWatch.

The rate pause may have been priced in, but the forex markets are busy ahead of the Fed meeting. The New Zealand dollar has surged higher, as a pause makes the US dollar less attractive. The greenback could rebound if the rate statement and Jerome Powell’s follow-up remarks are hawkish enough to convince the markets that the Fed is pausing but leaving the door open for more hikes. That could well be Powell’s message to the markets, as he must tread a narrow path between Fed members who want to ease up on rates and those who favor more tightening in order to curb inflation.

New Zealand’s growth expected to decline

With the financial markets focussing on the Fed, New Zealand’s GDP release could be overshadowed. GDP is expected to have contracted by 0.1% in the first quarter after a -0.6% reading in Q4 2022. Two consecutive quarters of negative growth technically indicate a recession, although the New Zealand dollar is unlikely to react negatively unless GDP is lower than expected.

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NZD/USD Technical

• NZD/USD is testing resistance at 0.6208. Above, there is resistance at 0.6277
• 0.6130 and 0.6061 are providing support

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