New Zealand’s dollar tumbled after data showed the country’s economy declined far more than expected in the second quarter, and the Aussie dollar also weakened after the Australian employment unexpectedly declined in August

New Zealand’s dollar tumbled after data showed the country’s economy declined far more than expected in the second quarter, fuelling bets of steeper rate cuts this year. The Aussie dollar also weakened after the Australian employment unexpectedly declined in August.

The U.S. dollar ticked higher on Thursday following its plunge to a 3-1/2-year low.

Meanwhile, the U.S. central bank reduced rates by a quarter point on Wednesday, as expected, and indicated it will steadily lower borrowing costs for the rest of this year. The bank’s Chair Jerome Powell characterised the day’s policy action as a risk-management cut in response to the weakening labour market, but said the central bank does not need to rush easing.

The dollar declined to the lowest since February 2022 at 96.224 against a range of major peers immediately after the rate decision, but rebounded to be as much as 0.44% higher on the day at 97.074. It continued that climb on Thursday to stand at 97.163.

The bank’s dot plot of policy expectations predicted a median 50 basis points of additional cuts over the remaining two policy meetings of this year, but only one additional reduction in 2026.

The revised forecasts highlighted the degree of uncertainty that remains over the outlook, said Elliot Clarke, head of international economics at Westpac.

The timing and scale of the forecast rate cuts also point to lingering risks for inflation, Clarke added.

The euro slid 0.2% to $1.1791, after a round trip to the highest since June 2021 at $1.19185 on Wednesday.

Sterling shed 0.2% to $1.3604 after briefly leaping to the highest since July 2 at $1.3726 in the prior session.