NZD/USD seeks cushion around 0.6430 as Fed sets to announce a smaller rate hike

• NZD/USD is looking for a cushion around 0.6430 as investors see a less-hawkish Fed monetary policy.
• The decline in US inflation is backed by a significant drop in gasoline prices, used cars, and airline fares.
• Going forward, a mixed response is expected from New Zealand GDP data.

The NZD/USD pair has turned sideways around 0.6430 after a gradual correction from Tuesday’s high above 0.6500. The Kiwi asset is seeking a cushion as the overall market is still bullish. Anxiety ahead of the Federal Reserve (Fed) policy has seldom impacted the risk-sensitive currencies in the Tokyo session.

The US Dollar index (DXY) is displaying a lackluster performance as investors are awaiting the Fed’s interest rate announcement for making informed decisions. The USD Index is auctioning above 104.10 amid a quiet market mood. Sheer volatility is expected in the US Dollar as the Fed is expected to adopt a less-hawkish sound while dictating the last monetary policy of CY2022.

The 10-year US Treasury yields are continuously oscillating below 3.50% after a decline in the United States Consumer Price Index (CPI) consecutively for the second month. The decline in US inflation is backed by a significant drop in gasoline prices, used cars, and airline fares.

Analysts at RBC Capital Markets see the Fed raising the Fed Funds rate by 50 basis points (bps) on Wednesday and they then pointed out that the more encouraging inflation signs make a pause in early 2023 more likely.

On the New Zealand front, investors are awaiting the release of the Gross Domestic Product (GDP) data, which will release on Thursday. As per the consensus, the quarterly GDP data for the third quarter is seen lower at 0.9% vs. the prior release of 1.7%. While the annual GDP is expected to expand sharply by 5.5% against the former release of 0.4%.

In the Half Year Economic and Fiscal Update, the New Zealand Treasury has forecasted three-quarters of a shrinking economy starting in the second quarter of 2023.