NZD/USD Price Analysis: Rallies to 0.6230 with Fed policy taking centre stage

• NZD/USD surges to near 0.6230 as the Kiwi dollar performs strongly.
• Investors await the Fed's interest rate decision, which is expected to be dovish.
• Traders lean towards Fed 50 bps rate cut prospects.

The NZD/USD pair delivers a sharp upside move to near 0.6230 in Wednesday's North American session. The kiwi asset rallies as the New Zealand Dollar (NZD) strengthens despite the Reserve Bank of New Zealand (RBNZ) is expected to soften its Official Cash Rate (OCR) further due to weak economic performance and the US Dollar (USD) is down ahead of Federal Reserve's (Fed) monetary policy decision.

For fresh insights on NZ's economic health, investors will focus on the Q2 Gross Domestic Product (GDP) data, which will be published on Thursday. The NZ economy is estimated to have contracted by 0.5% on an annualized basis after growing by 0.3% in the second quarter of the last fiscal year.

Meanwhile, the major trigger for the Kiwi asset will be the Fed's policy announcement at 18:00 GMT. The Fed is poised to deliver its first interest rate cut decision in more than four years. Investors will keenly focus on the Fed's likely interest rate cut size and the dot plot.

According to the CME FedWatch tool, 30-day Federal Funds Futures pricing data shows that the probability of the central bank cutting rates by 50 basis points (bps) to 4.75%-5.00% is 61% and the rest favors a 25-bps rate cut.

NZD/USD extends its recovery above 23.6% Fibonacci retracement (plotted from the August 5 low of 0.5850 to the August 29 high of 0.6300) near 0.6200. Earlier, the asset rebounded strongly after retracing 38.2% from the August 29 high of 0.6300 to near 0.6130. The 20-period Exponential Moving Average (EMA) near 0.6200 continues to provide support to the New Zealand Dollar bulls.

The 14-period Relative Strength Index (RSI) stands above 60.00. A fresh round of bullish momentum could occur if the oscillator sustains around this level.

Further upside above the September 6 high of 0.6250 would drive the asset towards the September 2 high of 0.6300, followed by this year's high of 0.6330.

In an alternate scenario, a downside move would appear if the asset decisively breaks the July 17 high near 0.6100. This would push the asset lower to the May 3 high at 0.6046 and the psychological support of 0.6000.

NZD/USD four-hour chart