During Asian trading hours on Tuesday, the NZD/USD pair edged up to near 0.6210, supported by the Federal Reserve’s dovish outlook and growing expectations of a US rate cut. The broader weakness in the US Dollar (USD) is driven by anticipation of upcoming US economic data, including the advanced Gross Domestic Product (GDP) Annualized for Q2 and the Personal Consumption Expenditures (PCE) Price Index.
San Francisco Fed President Mary Daly’s comments on Monday advocating for an interest rate cut align with remarks made by Fed Chair Jerome Powell at the Jackson Hole symposium on Friday. Powell has indicated that the Fed has successfully managed inflation while maintaining labor market stability. Financial markets now fully expect a 25 basis points (bps) rate cut, with the probability of a deeper cut reduced to 30% from 36.5% last Friday, according to the CME FedWatch Tool.
On the New Zealand side, the Reserve Bank of New Zealand (RBNZ) commenced its easing cycle by lowering its Official Cash Rate (OCR) to 5.25% in August. Market participants anticipate further rate cuts of 25 bps in October and November, which could pressure the New Zealand Dollar (NZD) against the Greenback.
Geopolitical tensions in the Middle East also pose a potential boost to safe-haven flows, potentially benefiting the USD. US Air Force General C.Q. Brown, chairman of the Joint Chiefs of Staff, noted early Tuesday that fears of a broader regional conflict have lessened following recent exchanges of fire between Israel and Lebanon’s Hezbollah. However, General Brown cautioned that “Iran still poses a significant danger as it weighs a strike on Israel,” according to Reuters.
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