The New Zealand dollar fell broadly in Asian trading on Thursday against a basket of major and minor currencies, extending its losses for the second consecutive day against the US dollar, retreating from a seven-week high amid accelerating correction and profit-taking, in addition to the continued recovery of the greenback from multi-year lows.

Data released in New Zealand showed a sharper-than-expected economic contraction in the second quarter, boosting expectations of deeper interest rate cuts by the Reserve Bank of New Zealand this year.

Price Overview

NZD/USD today: The New Zealand dollar dropped about 0.9% to 0.5911, from an opening of 0.5963, after touching a high of 0.5970.

On Wednesday, the kiwi ended down more than 0.4% versus the US dollar its first loss in three sessions after earlier hitting a seven-week high of 0.6008 amid correction and profit-taking.

US Dollar

The US dollar index rose about 0.2% on Thursday, extending gains for a second straight session, recovering from a 3-year low of 96.22, reflecting continued rebound against a basket of global currencies.

Beyond bargain-hunting, the dollars rebound followed a cautious Federal Reserve stance on further rate cuts. On Wednesday, the Fed trimmed rates by a quarter-point as expected, and Chair Jerome Powell described the move as a risk-management cut in response to labor market weakness, stressing the Fed is in no rush to ease aggressively.

Sharp Economic Contraction in New Zealand

Fresh data showed New Zealands GDP shrank 0.9% in Q2, the steepest drop since Q3 last year, far worse than forecasts of a 0.3% decline. The economy had grown 0.9% in Q1.

New Zealand Interest Rates

Following the data, odds of a 25 bps cut at the October 8 RBNZ meeting jumped above 90%.

Futures pricing now points to a policy rate of 2.5% by year-end.

Westpac revised its forecast for the next RBNZ meeting to a half-point cut instead of a quarter-point.