NZD/USD trades with mild negative bias above the mid-0.6100s ahead of US CPI data

• NZD/USD trades on a softer note near 0.6169 amid the modest rebound of USD on Tuesday.
• Financial markets have priced in nearly 70% odds of a rate cut from the Fed in June.
• The RBNZ softened its hawkish tone amid signs of easing inflation pressures.
• The US February CPI inflation data will be in the spotlight on Tuesday.

The NZD/USD pair trades with a mild negative bias above the mid-0.6100s during the early Asian session on Tuesday. The modest recovery of the US Dollar (USD) weighs on the pair. Investors will closely watch US Consumer Price Index (CPI) inflation data for February, due later in the day. At press time, NZD/USD is trading at 0.6169, down 0.01% on the day.

The US February CPI data will be the highlight on Tuesday as investors will observe the degree of inflation persistence. The headline CPI figure is expected to remain steady at 3.1% YoY, while the Core CPI figure is estimated to ease to 3.7% YoY in February. The rising inflation is likely to delay the Federal Reserve’s (Fed) decision to lower the interest rate. This, in turn, might lift the Greenback and cap the upside of the NZD/USD pair.

On the other hand, if inflation eases as expected, it could convince the Fed to cut the fed funds rate in its June meeting, which might drag the USD lower against its rivals. According to the CME Group’s Fedwatch Tool, the expectations for a rate cut of at least 25 basis points (bps) at the June meeting are currently above 70%.

On the Kiwi front, the Reserve Bank of New Zealand (RBNZ) kept the Official Cash Rate (OCR) unchanged at 5.5% at its February meeting. However, the central bank softened its hawkish tone amid signs of easing inflation pressures. The RBNZ statement stated that core inflation and most measures of inflation expectations have declined, and the risks to the inflation outlook have become more balanced.

Moving on, market participants will watch the US February CPI data on Tuesday. Later this week, New Zealand’s Food Price Index will be due on Wednesday, and US Retail Sales will be released on Thursday. Traders will take cues from these events and find trading opportunities around the NZD/USD pair.