NZD/USD holds ground near 0.6100 following the recent losses

• NZD/USD lost ground due to rising hawkish sentiment surrounding the Fed.
• CME FedWatch Tool suggested the probability of a Fed rate cut in September has decreased compared to the previous week.
• The US Dollar (USD) extends its gains due to the rising US Treasury yields.

NZD/USD remains tepid following the decline in the previous session, trading around 0.6110 during the Asian hours on Monday. The US Dollar (USD) regained its strength from the better-than-expected US employment data released on Friday, which has caused expectations of the Federal Reserve (Fed) delaying rate cuts. This has put pressure on the NZD/USD pair.

The rise in US Treasury yields bolsters the strength of the US Dollar as a strong US jobs report would bolster a hawkish stance from the Federal Reserve. The CME FedWatch Tool indicates that the likelihood of a Fed rate cut in September by at least 25 basis points has decreased to nearly 48.0%, down from 54.8% a week earlier.

In its report, Rabobank proposed that the Federal Reserve might reduce rates in September and December, primarily due to a worsening economy rather than advancements in inflation control. Their analysis suggests that the US economy is transitioning into a stagflationary phase characterized by ongoing inflation and an economic deceleration, potentially culminating in a mild recession later this year.

On the Kiwi front, the New Zealand Dollar (NZD) has been underpinned by the country's relatively high interest rates, despite economic challenges. The Reserve Bank of New Zealand (RBNZ) is anticipated to uphold a steady policy stance until at least mid-2025, aiming for a comprehensive evaluation of data.

However, the NZ Herald reported last week that New Zealand’s Finance Minister, Nicola Willis, emphasized that the 2024 budget would not prolong higher interest rates, despite concerns from economists that it might complicate the RBNZ's endeavors to curb inflation.