NZD/USD slumps from 0.6250 as US Dollar strives to gain ground

• NZD/USD drops from 0.6250 as the market sentiment turns cautious.
• The US Dollar bounces back ahead of Fed Harker’s policy announcement.
• Traders expect the Fed to reduce interest rates further by 75 bps in the remainder of the year.

The NZD/USD pair faces selling pressure above the crucial resistance of 0.6250 in Friday’s North American trading hours. The Kiwi asset drops as the US Dollar (USD) attempts to gain ground above the annual low. The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, bounces back from the annual low of 100.20 to near 100.90.

Market sentiment turns cautious as investors shift focus to global PMI data, which will be published on Monday. The S&P 500 opens on a bearish note, indicating a decline in investors’ risk appetite. The cautious market mood has also weighed on risk-perceived currencies, such as the New Zealand Dollar (NZD).

Growing uncertainty over the Federal Reserve’s (Fed) interest rate outlook has made market sentiment cautious. The Fed delivered its first interest rate cut decision in more than four years on Wednesday, in which it reduced its key borrowing rates by 50 basis points (bps) to 4.75%-5.00%. Fed policymakers projected the federal fund rate to decline to 4.4% by year-end. Also, comments from Fed Chair Jerome Powell at the press conference signaled that the policy-easing cycle wouldn’t be aggressive.

On the contrary, traders expect that the Fed’s rate-cut cycle will be more aggressive than other central bankers. The CME FedWatch tool shows that the Fed will cut borrowing rates further by 75 bps in the remaining two meetings this year, suggesting that there will be one more 50 bps rate cut.

Meanwhile, the NZ Dollar could face selling pressure due to deepening growth concerns. The NZ economy contracted by 0.2% in the second quarter of the year and its economic outlook is also vulnerable. However, the pace at which the economy contracted was slower than the expected pace of 0.4%.