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NZD/USD rose to around 0.6210 in Asia on Tuesday. The Fed’s dovish stance and rising expectations of a rate cut continue to weaken the dollar broadly. Traders will be keeping a close eye on key U.S. data, including the latest annual second-quarter GDP and the personal consumption expenditures (PCE) price index, due later this week.
San Francisco Fed President Mary Daly said on Monday she believed it was appropriate for the central bank to begin cutting interest rates. Her dovish comments echoed a speech by Federal Reserve Chairman Jerome Powell at a Jackson Hole symposium on Friday. Powell has concluded that the Fed has lowered inflation while keeping the labor market strong. According to data from the CME FedWatch Tool, financial markets have fully priced in the possibility of a 25 basis point (bps) rate cut, while the probability of a deeper rate cut has increased from 36.5 on Friday. % dropped to 30%.
In the New Zealand dollar, the Reserve Bank of New Zealand (RBNZ) has begun its easing cycle, cutting the official cash rate (OCR) to 5.25% in August. Traders expect the Reserve Bank of New Zealand to cut interest rates by another 25 basis points in October and November. This in turn could drag NZD/USD lower.
In addition, continued geopolitical risks may boost safe-haven capital flows, benefiting the dollar. According to a Reuters report, U.S. Chairman of the Joint Chiefs of Staff, Air Force Gen. C.Q. Brown, said earlier on Tuesday that concerns about the outbreak of a broader Middle East war in the near future have subsided after Israel and Lebanon’s Hezbollah exchange of fire without further escalation. . However, the top US general warned that “Iran still poses a significant danger as it weighs a strike against Israel.”
