NZD/USD depreciates to near 0.5850 due to rising odds of a bumper RBNZ rate cut

• NZD/USD loses ground due to rising expectations of a larger 75 bps rate cut by the RBNZ next week.
• The US Dollar received support from cautious comments by the Fed officials.
• Boston Fed President Susan Collins emphasized the importance of a cautious approach in making policy decisions.

NZD/USD extends its losses for the second consecutive day, trading around 0.5860 during the European hours on Thursday. The New Zealand Dollar (NZD) faces challenges due to growing expectations that the Reserve Bank of New Zealand (RBNZ) could deliver a bumper interest rate cut next week.

On Thursday, New Zealand's Treasury Chief Economic Adviser, Dominick Stephens, said it would likely revise down its economic and fiscal forecasts due to a prolonged slowdown in productivity. This led investors to fully anticipate a 50 basis point (bps) rate cut, with a 12% chance of a larger 75 bps reduction in November’s policy meeting.

UOB Group FX analysts Quek Ser Leang and Lee Sue Ann noted that while the New Zealand Dollar (NZD) may see some upward movement, it is unlikely to reach 0.5960 in the near term. However, as long as the NZD stays above 0.5850, it could gradually rise to 0.5960 over time.

The US Dollar may appreciate further due to the cautious remarks from Federal Reserve (Fed) officials. Additionally, market expectations suggest that the incoming Donald Trump administration will spur inflation, thereby slowing the rate cut trajectory from the Fed, lending support to the Greenback.

Boston Fed President Susan Collins stated on Wednesday that while more interest rate cuts are necessary, policymakers should proceed cautiously to avoid moving too quickly or too slowly, according to Bloomberg. Meanwhile, Fed Governor Michelle Bowman highlighted that inflation remains elevated over the past few months and stressed the need for the Fed to proceed cautiously with rate cuts.

Traders will be closely monitoring the US weekly Initial Jobless Claims, the Philadelphia Fed Manufacturing Index, and Existing Home Sales, all of which are scheduled for release later on Thursday.