NZD/USD extends downside to near 0.5650 as traders await Fed rate decision

• NZD/USD softens to around 0.5665 in Wednesday's early Asian session. 
• The Fed is expected to hold its benchmark rate steady on Wednesday. 
• RBNZ's Conway said rate will tend towards neutral in the absence of future shocks to the system as pandemic-related disruptions fade.

The NZD/USD pair extends the decline to near 0.5665 during the early Asian session on Wednesday, pressured by the renewed US Dollar (USD) demand. The US Federal Reserve interest rate decision will take center stage later on Wednesday. 

Market pricing is pointing to a near 100% certainty that the Fed will keep the policy rate in a target range of 4.25%-4.50%, according to the CME FedWatch tool. However, investors will closely watch Fed Chair Jerome Powell's press conference as it might offer additional insights into the monetary policy outlook. The cautious stance from the Fed officials could provide some support to the Greenback and act as a headwind for the pair. 

"Nobody knows what to expect from the White House. The policy moves are still very unclear, but we do know that a number of those proposals that have been talked about in the White House are a bit inflationary, and I think that's going to keep the Fed in check," said U.S. Bank chief economist Beth Ann Bovino.

On the Kiwi front, the dovish bets of the Reserve Bank of New Zealand (RBNZ) could undermine the New Zealand Dollar (NZD). Swaps markets are now pricing in nearly 90% possibility of another 50 basis points (bps) reduction on February 19, adding to the two delivered earlier in the cycle. The New Zealand central bank is anticipated to deliver a total of 100 bps of rate cuts for the remainder of 2025.

Late Tuesday, RBNZ Chief Economist Paul Conway said that easing domestic pricing intentions and a drop in inflation expectations will help open the way for some further easing of the OCR, as signalled in November.