NZD/USD declines to 0.6440 on weak New Zealand HYEFU, RBNZ, pre-Fed warning probes bears

NZD/USD cites New Zealand's (NZ) disappointing Half Year Economic and Fiscal Update (HYEFU) to justify a fresh intraday low near 0.6440 on Wednesday morning. However, recent pair selling have been challenged by pronouncements from the Reserve Bank of New Zealand (RBNZ) and the cautious tone preceding the crucial Federal Open Market Committee (FOMC) monetary policy meeting.

Reuters reported that the New Zealand Treasury anticipates three quarters of negative Gross Domestic Product (GDP) growth in the current fiscal year 2023 (CY23). The news also said that New Zealand expected a budget deficit of NZ$3.63 billion ($2.34 billion) for the fiscal year ending June 30, 2023, which is less than the NZ$6.63 billion deficit projected in the country's budget in May.

Following the negative pronouncements, the RBNZ crossed wires, through Reuters, while noting, “Even with the forecast downturn in the period ahead, it is envisaged that the level of employment will remain high.” The New Zealand central bank also noted that current and predicted inflation is too high and has to be controlled.

It should be highlighted, however, that the most recent anxieties originating from China, mostly owing to the global and internal pessimism surrounding the Covid circumstances, appear to favor the NZD/USD to hold its gains from the previous day. The International Monetary Fund (IMF) Managing Director Kristalina Georgieva was sighted forecasting weaker economic growth for China due to the new surge in the daily Covid cases. In addition, Bloomberg reported that the Chinese leadership postponed the economic policy meeting because of the COVID-19 outbreak. The Asian Development Bank (ADB) lowered its prediction for China's GDP growth in 2023 to 4.3% from 4.5% in September.

The US Dollar Index (DXY) declined on Wednesday after the US Consumer Price Index (CPI) for November dipped to 7.1% from 7.3% and 7.8% previously. In addition, the CPI excluding food and energy, often known as the Core CPI, decreased to 6.0% YoY during the specified month, compared to market expectations of 6.1% and previous readings of 6.3%. Following the release of the data, Reuters reported, "Traders of futures related to the Federal Reserve's policy rate increased their wagers that the U.S. central bank will slow its interest-rate raise pace further in the first quarter of 2019."

Wall Street closed with a gain against this backdrop, but the S&P 500 Futures lack obvious direction. In addition, US Treasury bond rates are stagnant after falling the highest in a week and halting a three-day advance.

Moving forward, pre-Fed jitters could limit NZD/USD price movement, but bears could maintain optimism at the multi-day high if they anticipate a hawkish Fed surprise.