Dollar Finds Relief from Fed, Kiwi Crashes on GDP, BoE Next – Action Forex

Volatility surged overnight as markets digested the Fed’s 25bps cut and updated projections. The Dollar initially sank on confirmation of two more cuts this year, only to rebound sharply as traders judged the overall stance less dovish than expected. The reversal pulled Wall Street and Gold lower from record levels, while 10-year yields firmed after briefly dipping under 4%.

The rebound in the greenback suggests the worst of the selling pressure may have passed for now, though it remains too early to call a trend reversal. Much will depend on whether incoming U.S. data validate the Fed’s relatively upbeat growth and employment forecasts. Any downside surprises could quickly reignite selling pressure.

In the Asia-Pacific, the spotlight was on New Zealand, where GDP contracted much deeper than expected in Q2. The breadth and depth of weakness spurred calls for deeper RBNZ easing. The central bank’s projection of an OCR at 2.50% by year-end looks increasingly conservative, with Westpac and others arguing that faster and deeper cuts are warranted.

Australia added to the gloom with softer labour market figures, with sharp decline in full-time positions. While the RBA is still expected to hold rates at 3.60% later this month, the probability of a November cut has clearly increased as labour market cracks widen.

As a result, Dollar currently leads the performance board for the day so far, followed by the Loonie and Sterling. At the bottom, Kiwi remains the weakest, trailed by Aussie and Swiss Franc, with Euro and Yen holding middle ground.

Attention now turns to the BoE, where a hold at 4.00% is widely expected. The latest UK CPI showed headline inflation steady at 3.8% in August—almost double the BoE’s 2% target—while wage growth remains firm despite signs of a softening jobs market. The persistence of price pressures has left policymakers cautious about cutting too quickly.

The outlook beyond September is less clear. Markets remain divided over whether the BoE will cut again in November. Governor Andrew Bailey has already warned of “considerably more doubt about exactly when and how quickly” further easing might occur, noting that investors have started to internalize this slower trajectory. Today’s decision and guidance will be pivotal in shaping expectations heading into year-end.

In Asia, at the time of writing, Nikkei is up 1.27%. Hong Kong HSI is down -0.88%. China Shanghai SSE is down -0.18%. Singapore Strait Times is down -0.07%. Japan 10-year JGB yield is up 0.006 at 1.598. Overnight, DOW rose 0.57%. S&P 500 fell -0.10%. NASDAQ fell -0.33%. 10-year yield rose 0.050 to 4.076.

Fed less dovish than expected, Gold risks deeper pullback

The FOMC’s rate cut overnight initially pressured Dollar and Treasury yields lower, while Gold surged to new records. But sentiment quickly reversed as markets interpreted the decision and projections as less dovish than hoped. The Dollar rebounded, 10-year yields recovered after slipping below 4%, and Gold retreated from its peak.

The turning point came from Chair Jerome Powell’s tone at the press conference. He described the cut as a matter of “risk management,” not a reflection of significant economic weakness. By calling policy “more neutral,” Powell signaled the Fed’s intent to stay flexible rather than embark on aggressive easing.

There are other less dovish than expected elements too:

• The vote reinforced that cautious stance. Only newly confirmed Governor Stephen Miran dissented in favor of a larger 50bps move. Even typically dovish members Christopher Waller and Michelle Bowman sided with the majority, suggesting that the Committee remains cautious about delivering outsized easing.
• The Fed’s dot plot met market expectations by signaling two more cuts this year, in October and December. However, only one additional cut is projected in 2026 and another in 2027, showing a shallow glide path rather than a deep easing cycle.
• The projections for growth and employment painted a more confident picture. GDP forecasts were revised higher across the board, to 1.6% in 2025, 1.8% in 2026, and 1.9% in 2027. The unemployment outlook was left unchanged at 4.5% in 2025, but nudged lower to 4.4% in 2026 and 4.3% in 2027, reflecting a view of continued labor market resilience.
• On inflation, the Fed raised its 2026 core PCE forecast from 2.4% to 2.6%, signaling concern that price pressures could linger longer than previously expected.

The combination of slightly firmer growth, resilient labor markets, and sticky inflation explains the Fed’s reluctance to commit to a faster easing cycle.

Technically, for Gold, further rise would remain in favor as long as 3612.75 support holds. But considering bearish divergence condition, strong resistance should emerge from 323.6% projection of 3267.90 to 3408.21 from 3311.30 at 3763.34 to cap upside. Meanwhile firm break of 3612.75 support will confirm short term topping, and bring deeper correction back towards 3499.79 resistance turned support.

NZ economy shrinks -0.9%, Kiwi dives on bets of 50bps RBNZ cut next

New Zealand’s economy contracted far more than expected in Q2, with GDP falling -0.9% qoq against consensus forecasts of -0.3% qoq. The release confirmed a deeper downturn, with economic activity now having declined in three of the last five quarters. The breadth of weakness points to rising headwinds that could force the RBNZ into a more aggressive easing cycle.

Goods-producing industries led the contraction with a -2.3% drop, while primary industries fell -0.7% and services output was flat. “The 0.9 percent fall in economic activity in the June 2025 quarter was broad-based with falls in 10 out of 16 industries,” said economic growth spokesperson Jason Attewell. Manufacturing was the single largest drag, contracting -3.5% in the quarter, while construction fell -1.8% following a modest rebound in Q1.

The scale of contraction triggered a wave of forecasts for deeper RBNZ easing. Westpac now expects a 50bp cut in October followed by a further 25bp reduction in November, compared with earlier projections of 25bp moves at both meetings. That would lower the OCR from the current 3.00% to 2.25% by year-end.

New Zealand Dollar responded by being sold off deeply after the release. Technically, immediate focus is now on 0.5913 support in NZD/USD with today’s sharp fall. Firm break there will indicate that rebound from 0.5799 has completed as a corrective move to 0.6006. More importantly, that would argue that the decline from 0.6119 is not over yet, and would extend to 61.8% retracement of 0.5484 to 0.6119 at 0.57527 on resumption.

Australia jobs disappoint in August as employment falls -5.4k

Australia’s labor market weakened in August as total employment fell by -5.4k, against expectations for a 21.2k gain. The headline masked stark contrasts, with full-time jobs dropping by -40.9k while part-time roles increased by 35.5k. Hours worked fell -0.4% mom, underscoring signs of cooling demand for labor.

The unemployment rate held steady at 4.2% in line with forecasts, though the participation rate edged down to 66.8% from 67.0%. The data suggest that while unemployment remains low, underlying labor market conditions are softening.

AUD/USD Daily Report

Daily Pivots: (S1) 0.6626; (P) 0.6667; (R1) 0.6692; More...

Intraday bias in AUD/USD is turned neutral first with break of 0.6630 minor support. Some consolidations would be seen, but further rally is expected as long as 55 D EMA (now at 0.6539) holds. Decisive break of 0.6713 fibonacci level will carry larger bullish implications. However, sustained break of 55 D EMA will confirm short term topping and rejection by 0.6713. Deeper fall should then be seen back to 0.6413 support.

In the bigger picture, there is no clear sign that down trend from 0.8006 (2021 high) has completed. Rebound from 0.5913 is seen as a corrective move. While stronger rally cannot be ruled out, outlook will remain bearish as long as 38.2% retracement of 0.8006 to 0.5913 at 0.6713 holds. Nevertheless, considering bullish convergence condition in W MACD, sustained break of 0.6713 will be a strong sign of bullish trend reversal, and path the way to 0.6941 structural resistance for confirmation.