NZD/USD Hits Fresh Multi-Week High, Around Mid-0.6100s Ahead Of US CPI

The NZD/USD pair attracted fresh buying near the 0.6100 round-figure mark on Tuesday and built on its steady intraday ascent through the first half of the European session. The momentum lifts spot prices to a nearly three-week high, around the 0.6155 region in the last hour, and is sponsored by renewed US Dollar (USD) selling bias.

The USD Index (DXY), which tracks the Greenback against a basket of currencies, dives to its lowest level since May 18 and continues to be weighed down by expectations that the Federal Reserve (Fed) will skip raising interest rates in June. The recent dovish rhetoric by a slew of FOMC members lifted bets for an imminent pause in the US central bank’s year-long policy tightening cycle. This, in turn, leads to a fresh leg down in the US Treasury bond yields, which is seen undermining the buck and acting as a tailwind for the NZD/USD pair.

A generally positive tone around the equity markets is another factor weighing the safe-haven USD and benefitting the risk-sensitive Kiwi. That said, worries about a global economic slowdown, particularly in China, might keep a lid on the optimism. Furthermore, surprise rate hikes by other major central banks – the Reserve Bank of Australia (RBA) and the Bank of Canada (BoC) – last week suggested that the fight against inflation is not over yet. This, in turn, has been fueling speculations about another 25 bps lift-off by the Fed in July.

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 hold back bulls from placing bold bets around the NZD/USD pair. Investors might also prefer to wait on the sidelines ahead of the release of the latest US consumer inflation figures, due later during the early North American session. The crucial US CPI report will influence the next policy move by the Fed, which is scheduled to announce the outcome of the highly-anticipated two-day monetary policy meeting on Wednesday.

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