NZD/USD softens to near 0.5860 as Trade Deficit widens sharply

• NZD/USD weakens to near 0.5860 in Friday's early European session, losing 0.42% on the day. 
• New Zealand's Trade Deficit widened sharply in August, weighing on the Kiwi.
• The Fed cut the Federal Funds Rate by a quarter percentage point, bringing it to a range of 4.00% to 4.25%. 

The NZD/USD pair extends its downside around 0.5860 during the early European session on Friday. The New Zealand Dollar (NZD) faces some selling pressure near a two-week low following the release of New Zealand's Trade Balance data for August. 

Data released by Statistics New Zealand on Friday showed that New Zealand's trade balance has significantly deteriorated, with the figure showing a deficit of NZD 1.185 billion, compared to the previous deficit of NZD 716 million. This reading came in worse than the expectation of NZD 746 million and suggested a worsening trade position. The downbeat New Zealand Trade Balance report could undermine the Kiwi against the US Dollar (USD) in the near term. 

The US Federal Reserve (Fed) cut its benchmark interest rate by 25 basis points (bps) to a new target range of 4.00%-4.25% at its September meeting on Wednesday, as widely expected. This was the first rate reduction of 2025, prompted by a weakening labor market and despite inflation that remains somewhat elevated. 

A Summary of Economic Projections (SEP), or 'dot plot,' showed that the median Fed policymakers expect two more rate cuts before the end of 2025 and one more in 2026. Powell further stated that the US central bank did not need to rush easing and emphasized a 'meeting-by-meeting' approach to further cuts. Less dovish than expected remarks from the Fed provide some support to the Greenback and act as a headwind for the pair.