NZD/USD: Sell-off stalls ahead of the Fed and NZ GDP

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  • NZD/USD has retraced nearly 25% of the recent drop.
  • Recovery could be short-lived if the Fed fails to match dovish expectations.
  • New Zealand’s growth rate likely ticked higher in the first quarter.

The sell-off in the NZD/USD has stalled ahead of the Federal Reserve’s closely-watched policy decision later in the day.

The currency pair rose 0.52% on Tuesday, retracing nearly 25% of the drop from 0.6681 to0.6487 seen over the preceding seven trading days.

The NZD likely found takers on reports stating that  China and the United States are rekindling trade talks ahead of next week’s meeting between Presidents Donald Trump and Xi Jinping.

The recovery may gather pace later today if the US Federal Reserve exceeds dovish expectations. Currently, the market is fully priced in for two 25 basis point rate cuts by the end of the December FOMC meeting and a 50% chance of a third. If the Fed fails to meet market expectations, the NZD/USD will likely fall back to recent lows below 0.65.

Post-Fed, the focus would shift to New Zealand data, due at 22:45 GMT, which is expected to show the annualized growth rate ticked higher to 2.4% in the first three months of 2019 from 2.3% seen in the final quarter of 2018.

A weaker-than-expected GDP will likely reinforce dovish RBNZ (Reserve Bank of New Zealand) expectations and hurt the NZD. As of writing, the pair is trading largely unchanged on the day near 0.6530.

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