NZD/USD Lingers Below 0.5950 Prior To The Fed's Policy Announcement

NZD/USD extends its three-day winning streak, trading higher around 0.5940 during Wednesday's Asian session. Prior to the US Federal Reserve's (Fed) decision, the duo experienced pressure earlier in the day.

US Dollar Index (DXY) surged during the American session on Tuesday as market sentiment deteriorated and US Treasury yields ascended higher. The DXY rose to 104.80, exceeding the 105.00 mark.

At the time of writing, the DXY is trading around 105.10, supported by rising US Treasury bond yields. The yield on the 10-year US Treasury note is 4.36 percent as of press time, which is below its greatest level in 16 years and poses a challenge for the NZD/USD pair.

The consensus on the market is that the Fed will maintain interest rates at the current range of 5.25 to 5.50 percent in September, which could place pressure on the greenback. According to the CME FedWatch Tool, the likelihood of a future rate increase decreased between November and December.

Nonetheless, the USD may find support as the possibility of maintaining higher interest rates for an extended period persists. This is due to the resilience of the US economy, which is characterised by diminishing inflation and stable employment growth.

The 'dot plots' will be intently scrutinised by market participants in order to gauge the anticipated interest rate trajectory. According to the most recent Summary of Economic Projections (SEP), the Fed's median forecast indicates that interest rates could reach a maximum of 5.6%.

According to a Reuters report, US Treasury Secretary Janet Yellen stated on Tuesday that, given that the economy is operating at full employment, it is essential for US growth to decelerate to a rate that corresponds with its potential growth rate in order to return inflation to target levels.

Yellen added, "I believe the Chinese will use the policy space they have to attempt to avoid a significant economic slowdown. The United States may be affected by China's economic difficulties."

In contrast, New Zealand's Current Account data for the second quarter revealed a figure of $-4,208B, compared to the market consensus of $-4,800B and the previous figure of $-5,215B. While the Current Account-to-GDP Ratio for the same quarter decreased by 7.5% compared to the 8.5% decline in the previous quarter.

In accordance with market expectations, the People's Bank of China (PBoC) left the benchmark lending rates unchanged at Wednesday's monthly fixing. The one-year Loan Prime Rate (LPR), which was decreased by 10 basis points the previous month, remained at 3.45%, while the five-year LPR remained unchanged at 4.200%.

Traders will keenly monitor the US Federal Reserve's meeting decision scheduled for later on Wednesday during the North American session.