NZD/USD stays above 0.5900 amid NZIER pessimistic forecast

• NZD/USD trades higher despite the soft economic data from New Zealand.
• NZIER’s Consensus Forecasts showed annual average GDP growth is expected to decelerate.
• US Dollar (USD) is facing downward pressure after the release of the US Consumer Sentiment Index on Friday.

NZD/USD starts the week on a positive note, trading higher around 0.5910 during the Asian session on Monday. The pair is experiencing upward support ahead of the interest rate decision by the US Federal Reserve (Fed) scheduled on Wednesday.

However, downbeat economic data from New Zealand could put a ceiling on the potential of the Aussie pair. The Business NZ PSI report printed a reading of 47.1 lower than the previous 47.8 figure, which showed that business conditions in the service sector weakened in August.

Moreover, prior to the release of New Zealand’s official Gross Domestic Product (GDP) data this week, the New Zealand Institute of Economic Research (NZIER) has issued its Consensus Forecasts for the country’s growth and inflation figures.

The consensus Forecasts showed the annual average GDP growth is expected to decelerate to 0.4% from 0.6% previously in the year ending March 2024. Subsequently, there is a projected recovery with GDP growth reaching 1.1 percent in 2025.

Higher interest rates are beginning to curtail demand as the consequences of prior rises in the Reserve Bank’s Official Cash Rate (OCR) are now filtering into the broader economy. Additionally, there is a downside risk stemming from reduced demand for New Zealand exports, primarily attributed to the dimmer growth prospects in China.

US Dollar (USD) has weakened following the release of downbeat consumer sentiment data from the United States (US) on Friday. The preliminary Michigan Consumer Sentiment Index printed a reading of 67.7, down from the previous figure of 69.5 and below the expected reading of 69.1 for September.

US Dollar Index (DXY), which gauges the performance of the Greenback against six other major currencies, concluded its ninth week with a gain of 0.26%. The spot price is trading lower around 105.30 at the time of writing. However, the upbeat US Treasury yields could limit the losses of the Greenback. The yield on US 10-year bond improved to 4.40%

The expectations regarding the Fed’s actions are being reinforced by key economic data from the United States in the past week. The probability of one more interest rate hike by the end of 2023 is bolstered by several positive economic indicators.

The Consumer Price Index (CPI), which measures inflation, exceeded expectations. Additionally, Retail Sales for the same month and Jobless Claims for the second week of September both revealed favorable outcomes for the US economy.

Market participants will closely monitor the Fed’s monetary policy decisions scheduled for Wednesday and will pay close attention to the central bank’s communications for any clues regarding the future direction of interest rates.