Ella 
In early Asian trading on Tuesday, the New Zealand dollar/US dollar was above the mid-range of 0.6100, with a mildly bearish trend. A modest recovery in the U.S. dollar is weighing on NZD/USD. Investors will pay close attention to U.S. February consumer price index (CPI) inflation data due later in the day. As of press time, the New Zealand dollar/US dollar was trading at 0.6169, down 0.01% on the day.
U.S. inflation in February will be in focus on Tuesday as investors look to see how sustained it is. Headline inflation is expected to remain steady at 3.1% in February, while core inflation will slow to an annual rate of 3.7%. Rising inflation could delay the Fed’s decision to cut interest rates. This could therefore boost the US dollar and limit the upside for NZD/USD.
On the other hand, if inflation eases back as expected, it could convince the Federal Reserve to cut the federal funds rate at its June meeting, which could weigh on the dollar lower against its rivals. Markets are currently pricing in more than 70% of the Fed cutting interest rates by at least 25 basis points (bps) at its June meeting, according to the CME FedWatch tool.
In NZD/USD, the Reserve Bank of New Zealand kept the official cash rate unchanged at 5.5% at its February meeting. However, amid signs of falling inflationary pressures, the central bank’s hawkish tone has softened. The Reserve Bank of New Zealand pointed out in a statement that core inflation and most indicators of inflation expectations have declined, and risks to the inflation outlook have become more balanced.
