The NZD/USD pair builds on its steady intraday ascent through the first half of the European session and currently trades around the 0.6165-0.6170 region, just below a three-week high touched the previous day.
The US Dollar (USD) struggles to register meaningful recovery. It languishes near its lowest level since May 17 in the wake of expectations that the Federal Reserve (Fed) will skip hiking interest rates at the end of a two-day policy meeting later today. The bets were reaffirmed by soft US consumer inflation figures on Tuesday, which undermined the Greenback and acted as a tailwind for the NZD/USD pair along with a modest downtick in the US Treasury bond yields.
The US Labor Department reported that the headline US CPI barely rose in May, and the year-on-year rate decelerated to the slowest pace since March 2021. Meanwhile, the annual inflation print of 4.0% is still twice the Fed’s 2% target and kept hopes alive for further policy tightening by the Fed. The markets are pricing a greater chance of a 25 bps lift-off at the July FOMC meeting, which should limit the downside for the US bond yields and support the buck.
The pre-Fed anxiety and worries about a global economic slowdown in China could drive some haven flows toward the Greenback. This, along with the Reserve Bank of New Zealand’s (RBNZ) clear signal that it was done with its most aggressive hiking cycle since 1999, might cap gains for the NZD/USD pair. Traders might also refrain from placing fresh bets and prefer to move to the sidelines heading into the critical central bank event risk.
The aforementioned mixed fundamental backdrop makes it prudent to wait for solid follow-through buying before positioning for an extension of the recent recovery from the YTD low – levels just below the 0.6000 psychological mark touched in May.