NZD/USD remains below 0.5650 after paring losses, US PCE eyed

• NZD/USD may further depreciate due to increased risk aversion.
• Traders adopt caution after the release of better-than-expected economic data from the United States.
• New Zealand's trade deficit narrowed in November, due to an increase in exports and a decrease in imports.

NZD/USD recovers daily losses to halt its losing streak, trading around 0.5640 during the early European hours on Friday. The downside risks for the pair seem possible due to the improved US Dollar (USD). This could be attributed to the increased risk aversion following the hawkish 25 basis point rate cut by the Federal Reserve (Fed) at its December policy meeting. Traders will likely observe the US Personal Consumption Expenditures (PCE) data, scheduled to be released by the US Bureau of Economic Analysis on Friday.

Moreover, the US Dollar strengthened after the release of better-than-expected key economic data from the United States (US). US Gross Domestic Product (GDP) Annualized reported a 3.1% growth rate in the third quarter, surpassing both market expectations and the previous reading of 2.8%. Additionally, Initial Jobless Claims dropped to 220,000 for the week ending December 13, down from 242,000 in the prior week and below the market forecast of 230,000.

In New Zealand, the trade deficit narrowed in November, driven by a rise in exports and a drop in imports. The country recorded a trade deficit of NZD 437 million in November, a significant improvement from the NZD 1,658 million deficit in October. Meanwhile, exports grew by 9.1% year-on-year to NZD 6.48 billion, while imports decreased by 3.9% to NZD 6.92 billion.

The New Zealand Dollar (NZD) encountered difficulties after weaker-than-expected GDP data for Q3, which heightened expectations for more aggressive monetary policy easing by the Reserve Bank of New Zealand (RBNZ). Markets have fully priced in a significant 50 bps rate cut at the central bank’s February meeting.