NZD/USD Faces Intense Selling Pressure Amid RBNZ’s Dovish Stance and Market Caution

The NZD/USD currency pair experienced a significant selloff, plummeting to the key support level of 0.6100. The New Zealand dollar faced headwinds from cautious market sentiment and a dovish stance from the Reserve Bank of New Zealand (RBNZ).

NZDUSD

The RBNZ keeps its Official Cash Rate (OCR) steady at 5.50%, maintaining a dovish outlook to address persistent inflation challenges. While the central bank anticipates consumer price inflation returning to the desired range of 1%-3% by Q3 2024, it signals a reluctance to tighten policy further. The RBNZ’s caution weighs on expectations for additional rate hikes, with no cuts anticipated until 2025 according to the latest forecasts.

The NZD is further burdened by a gloomy market mood, with investors adopting a cautious stance ahead of the release of the US core Personal Consumption Expenditure price index (PCE) data for January on Thursday. This crucial inflation metric will offer insights into the Federal Reserve’s potential timing for interest rate adjustments.

Economists’ consensus suggests a 0.4% monthly growth in the core PCE price index, compared to a 0.2% rise in December. On an annual basis, the underlying inflation data is expected to decelerate to 2.8% from December’s 2.9%. Soft inflation figures could fuel expectations of Fed rate cuts, adding pressure on the NZD/USD pair.

Trade Idea:

Monitor NZD/USD for potential reversal patterns or breakout opportunities as market sentiment evolves. Consider adjusting trading positions based on the upcoming US core PCE data release and any shifts in the RBNZ’s guidance.

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