The New Zealand dollar had a miserable Wednesday, plummeting 2.3%. NZD/USD has reversed directions Thursday and is trading at 0.5659 in the European session, up 0.66% on the day at the time of writing. The New Zealand dollar has been on a sharp descent, falling 10.8% since Oct. 1.

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US dollar soars after Fed rate cut

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There was no surprise as the Federal Reserve delivered a 25-basis point rate cut on Wednesday, the final rate announcement of the year. The market had priced in the move at close to 100% as the Fed did a good job of telegraphing its plans ahead of the decision. The move was near-unanimous, with 11 members voting for the 25 bp cut, with one member voted to maintain rates.

What caught the market off guard was the Fed’s rate cut projection for 2025. The Fed downwardly revised its forecast to two rate cuts, down from four rate cuts in the September forecast. The Fed’s signal that the pace of rate cuts will be very slow in 2025 sent the US dollar soaring against all the major currencies, while US equity markets took a tumble. The New Zealand dollar slipped 1.7% in the aftermath of the rate cut and fell 2.9% on the day.

Fed Chair Powell had a mixed message at his press conference after the meeting. Powell said he was “very optimistic” about the strength of the US economy and that the Fed was moving closer to ending the current rate-cutting cycle. Powell was less rosy about the inflation picture, saying that, “We have been moving sideways of 12-month inflation”. The Fed has largely contained inflation, but the downswing in has stalled and inflation remains above the 2% target.

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New Zealand GDP declines more than expected

New Zealand GDP for the third quarter was a disappointment, coming in at -1.0%. This follows a 1.1% decline in Q2, which was revised sharply lower from -0.2%, and well below the market estimate of -0.4%. This marks back-to-back quarters of negative growth, which points to a technical recession. Annually, the economy shrunk by 1.5%, much weaker than the Q2 reading of -0.5% and the market estimate of -0.4%.

The weak GDP data, along with the hawkish Fed rate cut, helped push the New Zealand dollar sharply lower on Wednesday. The Reserve Bank of New Zealand is under pressure to slash rates by 50 or even 75 basis points at the February meeting in order to kick-start the languishing economy.

NZD/USD Technical

• NZD/USD is putting pressure on resistance at 0.5668 and 05717
• There is support at 0.5575 and 0.5526