NZD/USD scales 5-week peak after Fed minutes, NZ data

The NZD/USD currency pair scaled a fresh five-week peak on Thursday, after data showed New Zealand’s trade deficit had shrunk in January, while the FOMC meeting minutes revealed a cautious approach to rate cuts.

New Zealand’s trade deficit shrank to NZD 0.976 billion in January from NZD 2.095 billion in the same month of 2023.

Total exports decreased 7.1% year-on-year to NZD 4.9 billion, mostly due to a drop in outbound shipments of crude oil (-69%), milk powder, butter and cheese (-3.6%), meat and edible offal (-7%) and wine (-34%).

Meanwhile, FOMC policy makers expressed concerns over the risks of reducing interest rates too early, the minutes of the Federal Reserve’s January 30th-31st policy meeting revealed.

“Participants highlighted the uncertainty associated with how long a restrictive monetary policy stance would need to be maintained” to navigate inflation back down to the Fed’s 2% objective, the minutes stated.

While “most participants noted the risks of moving too quickly to ease the stance of policy,” only “a couple … pointed to downside risks to the economy associated with maintaining an overly restrictive stance for too long.”

Some policy makers saw a risk that progress on inflation could stall in case the US economy continued to demonstrate the strength it has already shown.

Markets are now pricing in about a 30% chance that the Federal Reserve could start cutting interest rates in May. That compared with a more than 80% chance priced a month earlier.

“I don’t think the market’s quite as convinced about where we’re going to start to see the Fed cut rates. We know that the core PCE (personal consumption expenditures) next week will be stronger, so that pushes back expectations again of rate cuts in the U.S.,” Tony Sycamore, market analyst at IG, was quoted as saying by Reuters.

As of 10:08 GMT on Thursday the NZD/USD currency pair was edging up 0.41% to trade at 0.6205. Earlier in the session, the Forex pair went up as high as 0.6218. The latter has been the pair’s strongest level since January 15th (0.6242).