NZD/USD Recaptures 0.6100 Level Amid Weak USD, Upside Potential Appears Limited

NZD/USD attracted some bargain hunting in Asia on Monday and is expected to continue to fluctuate higher after a slight rebound from around 0.6000, the lowest level since mid-May hit last Friday. NZD/USD is currently trading around the 0.6100 mark, with the US dollar (USD) slightly weaker, but lacking bullish momentum amid uncertainty about the path of interest rate cuts from the Federal Reserve (Fed).

The US PCE price index released last Friday confirmed the deflationary trend reflected in the Consumer Price Index (CPI) and Producer Price Index (PPI) in May. The data reaffirmed the market’s bets that the Fed will initiate rate cuts at the September policy meeting, which puts dollar bulls on the defensive. In addition, the positive tone of US stock futures also weakened the status of safe-haven currencies, providing support for NZD/USD.

That said, the Fed took a more hawkish stance at the end of its June policy meeting and predicted only one rate cut in 2024. Moreover, President Joe Biden’s frequent misfires in the debates with his Republican opponent increased the possibility of Trump’s presidency. This, in turn, heightened concerns that the aggressive tariffs imposed by the Trump administration could fuel inflation and trigger higher interest rates, which remain a supportive factor for rising US Treasury yields and should prevent the dollar’s decline.

Moreover, expectations that the New Zealand Reserve Bank will cut interest rates earlier than expected and the troubled Chinese economy may hinder bullish traders from making new bets on NZD/USD. In fact, official data released last Sunday showed that China’s manufacturing activity fell for the second consecutive month in June, while service sector activity fell to a five-month low. Therefore, investors need to be cautious before confirming that NZD/USD has formed a recent bottom.

Traders are now looking forward to the scheduled release of important US macro data at the beginning of the month, starting with the ISM manufacturing purchasing managers’ index, for short-term trading opportunities later in the US session. However, the focus will remain on the closely watched US monthly employment data, namely the non-farm payrolls report (NFP) on Friday. The US non-farm will play a key role in influencing the recent US dollar price dynamics and driving volatility in the NZD/USD currency pair.

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