NZD/USD falls to 0.6070 as RBNZ delivers dovish rate outlook

NZD/USD fell vertically to around 0.6070 during the European session on Wednesday. New Zealand dollar assets plunged as the Reserve Bank of New Zealand (RBNZ) unexpectedly delivered dovish interest rate guidance, keeping the official cash rate (OCR) steady at 5.5% as expected.

The RBNZ opened the door to rate cuts amid slowing consumer inflation expectations. The central bank prefers to keep its monetary policy framework restrictive, but the degree of restriction will be relaxed. Regarding the inflation outlook, the RBNZ believes that price pressures will return to the ideal range of 1%-3% in the second half of this year.

Meanwhile, market sentiment remains firm as investors expect the Federal Reserve (Fed) to cut interest rates starting with its September meeting. S&P 500 futures made decent gains during the European trading session. The 10-year US Treasury yield fell to around 4.29% as Fed Chairman Jerome Powell said in his semi-annual congressional testimony on Tuesday that escalating inflation is not the only risk facing the central bank amid easing employment demand.

According to Reuters, Fed’s Powell said: “Labor market conditions have cooled substantially compared to two years ago,” and he also said that the United States is “no longer an overheated economy.”

The slowing outlook for the U.S. economy is negative for the U.S. dollar (USD). The U.S. dollar index (DXY), which tracks the value of the U.S. dollar against six major currencies, struggled to extend its recovery above 105.20.

Looking ahead, investors will focus on the U.S. Consumer Price Index (CPI) data for June, which will be released on Thursday. The core CPI excludes volatile food and energy prices and is expected to grow steadily in both the monthly and annual figures.

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