NZD/USD pares daily gains but holds some gains, trading around 0.6290 during the early European hours on Wednesday. The upside of the risk-sensitive Kiwi pair could be restrained due to rising risk aversion sentiment amid escalating geopolitical tensions in the Middle East.
Iran launched over 200 ballistic missiles at Israel, prompting Prime Minister Benjamin Netanyahu to vow retaliation against Tehran for the Tuesday attack. In response, Iran warned that any counterstrike would lead to "vast destruction," heightening concerns of a broader conflict, per Bloomberg.
Earlier this week, Federal Reserve (Fed) Chairman Jerome Powell. Powell said that the central bank will lower its interest rate gradually over time. The US Dollar receives support from the waning likelihood of an aggressive rate cut by the Fed in November.
The CME FedWatch Tool indicates that markets are assigning a 62.7% probability to a 25 basis point rate cut by the Federal Reserve in November, while the likelihood of a 50-basis-point cut is 37.3%, down from 57.4% a week ago.
The Reserve Bank of New Zealand's (RBNZ) monetary policy meeting is set for next week, and markets have already priced in a strong likelihood of a 50 basis point interest rate cut. HSBC analysts now expect the RBNZ to lower its cash rate by 50 basis points in both October and November, revising their earlier forecast of 25 basis point cuts for each month.
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