New Zealand Dollar steadies against US Dollar as markets await Fed decision

NZD/USD trades around 0.5755 at the time of writing on Wednesday, virtually unchanged on the day after rebounding from an over two-month low at 0.5737. However, the pair lacks a clear direction as investors refrain from taking large positions ahead of the Federal Reserve (Fed) monetary policy decision due later on Wednesday.

The US Dollar (USD) also pauses after recently revisiting a two-week high. Some profit-taking on the Greenback allows NZD/USD to remain above its session low, although caution prevails ahead of the US central bank announcement.

Markets widely expect the Fed to raise its benchmark interest rate by 25 basis points, bringing the target range to 3.75%-4%. According to the CME FedWatch tool, the implied probability of such a move stands at around 92%. Attention is therefore likely to focus primarily on signals regarding the future path of interest rates, as recent US inflation data and higher energy prices keep risks of persistent inflationary pressures alive.

On the New Zealand side, the announcement that Reserve Bank of New Zealand (RBNZ) Assistant Governor Karen Silk will leave in December is attracting attention. Silk is considered one of the more hawkish voices on the monetary policy committee and has regularly highlighted upside risks to inflation. Her departure could therefore alter the balance within the central bank at a time when investors expect further interest rate increases.

Markets currently expect New Zealand’s policy rate, which stands at 2.75%, to reach 3% by December and around 3.75% by mid-2027. These expectations are significantly above the 3.1% peak previously projected by the RBNZ, partly due to the recent increase in global Oil prices and the resulting inflationary risks.

Against this backdrop, NZD/USD remains primarily in a wait-and-see phase on Wednesday. The Fed decision and, more importantly, its guidance on whether the monetary tightening cycle will continue could provide the pair with its next directional catalyst.