• NZD/USD regains positive traction following the overnight failure near the key 200-day SMA.
• A modest USD downtick offsets dismal NZ Q4 GDP print and acts as a tailwind for spot prices.
• The Fed’s hawkish signal and Middle East tensions should limit USD losses and cap the major.

The NZD/USD pair attracts some buyers near the 0.5785 region during the Asian session on Thursday and reverses a part of the previous day's rejection slide from a technically significant 200-day Simple Moving Average (SMA). Spot prices look past the disappointing release of New Zealand's Q4 GDP print and climb to a fresh daily high, around the 0.5820 area, in the last hour.

Statistics New Zealand reported earlier today that the economy grew by 0.2% during the October-December period, marking a notable slowdown from the 0.9% increase (revised from 1.1%) recorded in the third quarter. On a yearly basis, the economy expanded by 1.3% during the fourth quarter, compared with a 1.1% rise (revised from 1.3%) in Q3, while missing estimates of a 1.7% growth. The New Zealand Dollar (NZD), however, reacts little to the dismal data, with a softer US Dollar (USD) acting as a tailwind for the NZD/USD pair.

Any meaningful USD downfall, however, seems elusive in the wake of the Federal Reserve's (Fed) hawkish outlook. As was widely expected, the US central bank held the federal funds rate steady at 3.50%-3.75% at the end of a two-day policy meeting on Wednesday. In the updated economic projections, the Fed raised its 2026 growth projection and the year-end inflation outlook (PCE), citing risks from higher energy prices on the back of the ongoing conflicts in the Middle East. Moreover, the Fed projected only one rate cut this year and one in 2027.

Furthermore, an attack on the world’s largest natural gas field in Iran remains supportive of elevated Crude Oil prices, fueling inflation concerns and reaffirming hawkish Fed expectations. This, along with a generally weaker tone around the equity markets, could benefit the safe-haven Greenback and warrants some caution before placing aggressive bullish bets around the risk-sensitive NZD/USD pair. Traders now look to the second-tier US economic data amid a flurry of central bank decisions, which should infuse some volatility in the markets.