NZD/USD traders counting down to the Fed against a dovish RBNZ backdrop

• NZD/USD firming up slightly ahead of the Fed announcements.
• NZD/USD could drop  on a hawkish cut, a one and done scenario, on a dovish RBNZ backdrop.

NZD/USD is down on the day so far by 0.31% at the time of writing, continuing to bleed out from the recent turn of the screw with respect to sentiment surrounding the Reserve Bank of New Zealand.

There is growing sentiment that the RBNZ is en-route to cut rates to the bare minimum. Indeed, global policy rates are on the move, and of course, it’s Federal Reserve interest rate decision day today which has been held in great anticipation for weeks, if not months.  However, with a focus on the RBNZ, for now, conventional wisdom says the Reserve Bank’s monetary policy committee will likely cut again in August when it will have had more information to justify another reduction.

RBNZ dovish outlook  

Should the Federal Reserve cut deeply today,  it may take some pressure off, but with the general move toward lower rates globally, along with weak domestic economic data, the case for the RBNZ   to do so in August is a no-brainer.   Moreover, the most recent date form New Zealand showed that the  measures of business confidence has deteriorated further in July and remains at very weak levels.  

“The fact there was a deterioration in the outlook across almost all components of the survey this month underscores the softness in today’s outturn,” analysts at Westpac explained with respect to New Zealand’s Business Confidence falling further in July.

“Furthermore, today’s survey supports our view that another rate cut will be required come November,” the analysts added, arguing that  nothing in the release will dissuade the  RBNZ  from cutting the OCR next week.  

the Fed and what it means for NZD/USD

Getting back to the Fed’, however, today’s decision and statement could turn out to conclude form a number of different scenarios and the Dollar hang in the balance of what the outcome will be. One way or the other, it will certainly determine the fate of NZD/USD, for the near term at least. The bird  could  firm-up again on the back of prospects of a dovish Federal Reserve and the possibility of a new easing cycle. However,   there are arguments for a ‘one and done’ scenario from the Fed, acting on just an insurance policy which could give some life back to the Dollar.

NZD/USD levels