NZD/USD hovers around 0.5840s after hitting a YTD low at 0.5804

• NZD/USD fell to an almost two-year-low, though it’s trimming some of its earlier losses.
• The Fed is expected to lift rates to the 4.4% threshold, according to the FOMC’s Summary of Economic Projections.
• US S&P Global PMIs, alongside Fed Chair Jerome Powell’s speech, are eyed on Friday.

The New Zealand dollar dropped to almost two-year-lows on Thursday amidst increasing fears that a frenzy of central banks tightening monetary conditions would likely tap the global economy into a recession. At the time of writing, the NZD/USD is trading at 0.5845, below its opening price by 0.11%

The US Federal Reserve decided to hike rates by 75 bps on Wednesday and emphasized that it would likely maintain its tightening cycle. The Summary of Economic Projections (SEP) showed that FOMC’s members expect the Federal funds rate (FFR) to end at around 4.4%.

NZD/USD cuts earlier losses but remains on the defensive

During the press conference, Jerome Powell said, “We have got to get inflation behind us,” and added, “I wish there were a painless way to do that. There isn’t.” The SEP updated GDP, PCE, core PCE, and unemployment projections. Most members expect GDP at 0.2%, while PCE and core PCE were revised upward to 5.4% and 4.5% by the year’s end. Concerning the unemployment rate, policymakers revised the number to 3.8%.

Before Wall Street opened, the Labor Department showed that claims for unemployment in the US for the last week, which ended on September 17, increased by 213K, less than the 217K estimated, but above the previous reading, downward revised to 208K.

Meanwhile, US Treasury bond yields rose, led by the 10-year benchmark note rate up by 14 bps, at 3.714%, while the greenback fell, as shown by the US Dollar Index.

In the meantime, the New Zealand economic docket reported that the Consumer confidence for the Q3 improved, from 78.7 to 87.6 in the previous quarter. During the last week, ANZ Bank economists foresee three additional 25 bps rate hikes by the RBNZ at the February, April, and May monetary policy meetings. Therefore, the bank estimates the Overnight Cash Rate (OCR) to finish at around 4.75%.

“The economy is not rolling over, with the tight labour market and strong wage growth partially offsetting the impact of higher interest rates. The low New Zealand dollar is also a meaningful offset to current monetary conditions,” said ANZ Bank analysts.

What to watch

The New Zealand economic docket is empty, leaving traders adrift to US economic data.

The US economic calendar will release the S&P Global Manufacturing. Services and Composite Flash PMIs for September and Fed speakers led by Chair Jerome Powell will cross newswires.

NZD/USD Key Technical Levels