Title: NZD/USD Dips Due to Risk Aversion Before Powell’s Speech – Analysis and Outlook
Introduction:
The NZD/USD pair experienced a decline, breaking its four-day winning streak and hovering around 0.6150 during the Asian session on Thursday. This drop can be attributed to the strengthening US Dollar (USD) driven by higher Treasury yields.
Market Outlook:
Traders are exercising caution ahead of Federal Reserve Chair Jerome Powell’s speech at the Jackson Hole Annual Symposium on Friday. Powell’s statement regarding potential interest rate cuts in the US is eagerly anticipated by the market participants.
Fed Rate Cut Expectations:
The Federal Reserve is expected to implement a total of 100 basis points (bps) in rate cuts by the end of the year. However, there is uncertainty among analysts regarding whether the Fed will opt for a 25 or 50 bps cut at the upcoming September meeting.
Market Predictions:
According to CME FedWatch Tool, there is a 65.5% probability of a 25 bps rate cut in September, down from 71.0% previously. The likelihood of a 50 bps rate cut has increased to 34.5%.
FOMC Minutes Insights:
The FOMC Minutes from July indicated that most Fed officials agreed on a rate cut in September if inflation continues to moderate. Traders are eagerly awaiting Powell’s speech for further guidance.
RBNZ Impact:
Dovish comments from the Reserve Bank of New Zealand following a surprise rate cut have pressured the NZD, limiting the upside of the NZD/USD pair.
Retail Sales Data:
New Zealand’s Retail Sales for Q2 are expected to decline by 1.0% quarter-on-quarter, following a 0.5% growth in Q1. This data release on Friday could impact the NZD further.
Conclusion and Analysis:
In summary, the NZD/USD pair has experienced a drop due to risk aversion and anticipation of Powell’s speech. The market is divided on the extent of rate cuts by the Fed, adding to the uncertainty. The upcoming Retail Sales data from New Zealand will provide further insights into the NZD’s performance. Investors should monitor these developments closely as they can have a significant impact on their financial decisions and portfolios.