NZD/USD drifts lower below 0.5650 as weaker GDP fuels RBNZ rate cut bets

• NZD/USD softens to near 0.5625 in Friday's early Asian session.
• The weaker Q3 GDP data sparked bets on aggressive RBNZ rate cuts. 
• The hawkish Fed expectations boost the USD and create a headwind for NZD/USD.

The NZD/USD pair remains under selling pressure around 0.5625 during the Asian trading hours on Friday. The deep recession in New Zealand fueled the Reserve Bank of New Zealand (RBNZ) rate cut bets, which undermine the Kiwi.

The weaker-than-expected New Zealand's Gross Domestic Product (GDP) data for the third quarter raised the risk of further large-scale interest rate cuts from the RBNZ. The markets have priced in a 91% chance of another 50 bps RBNZ rate reduction in February. 

"It supports the Reserve Bank getting on with official cash rate cuts and getting the OCR back to a more neutral level more quickly than they were anticipating in the November monetary policy statement," said Harbour Asset Management fixed income and currency strategist Hamish Pepper.

On the other hand, the hawkish rate cut by the Federal Reserve (Fed) on Wednesday lifts the USD and contributes to the pair's downside. During the Press Conference, Fed Chair Jerome Powell made clear that the Fed is going to be cautious about further cuts. Later on Friday, investors will monitor the release of the US Core Personal Consumption Expenditures (PCE) Price Index data, which is expected to show an increase of 2.9% YoY in November.