NZD/USD extends downside to 0.6040 ahead of Fed policy, NZ Q4 GDP

• NZD/USD falls to 0.6040 as dismal market sentiment dampens the appeal of risky assets.
• The US Dollar consolidates ahead of the Fed’s policy meeting.
• The NZ GDP is forecasted to have grown by 0.1% in the last quarter of 2023.

The NZD/USD pair continues to face a sell-off and drops to 0.6040 in the late Asian session on Wednesday. The Kiwi asset is under pressure as investors have turned cautious ahead of the Federal Reserve’s (Fed) interest rate decision, which will be announced at 18:00 GMT.

S&P 500 futures have posted some losses in the Asian session, portraying a decline in investors’ risk appetite. The US Dollar Index (DXY) consolidates around 103.85 as investors stay on the sidelines ahead of Fed policy.

The Fed is widely anticipated to keep interest rates unchanged in the range of 5.25%-5.50% for the fifth time in a row. While uncertainty over rate-cut projections will keep the upside in risk-sensitive assets limited. Investors hope that the Fed could support keeping interest rates higher for longer as inflation remained stubborn in February. 

Investors will keenly focus on the dot plot, which gets updated quarterly and shows projections for interest rates for different timeframes. 

Meanwhile, the next move in the New Zealand Dollar will be guided by domestic Gross Domestic Product (GDP) numbers for the final quarter of 2023. The economy is anticipated to have expanded slightly by 0.1% after contracting by 0.3% in the third quarter of 2023. 

An upbeat GDP data would allow the Reserve Bank of New Zealand (RBNZ) to maintain interest rates higher for longer. However, a decline in GDP figures would suggest that the New Zealand economy is in a technical recession. The RBNZ would be in trouble as it will be needed to make a balancing act between high inflation and vulnerable economic prospects.