NZD/USD depreciates to near 0.6150 as the Fed is expected to keep the policy rate unchanged

• NZD/USD inches lower as the US Dollar remains strong ahead of the Fed’s interest rate decision on Wednesday.
• CME FedWatch Tool suggests the likelihood of a Fed rate cut in September has decreased to 52%.
• The RBNZ is anticipated to maintain its current interest rate until at least mid-2025.

NZD/USD edges lower as traders favor the US Dollar (USD) ahead of the Federal Reserve's (Fed) decision and the release of US inflation figures for May, scheduled for later in the North American trading hours. The NZD/USD pair edges lower to near 0.6140 during the European hours on Wednesday.

The Federal Reserve is widely expected to keep the policy rate unchanged, maintaining it in the range of 5.25%-5.50% in June as it strives to reduce inflation toward its 2% target. The strong US labor market conditions have reduced the chances of a Fed rate cut in September. According to the CME FedWatch Tool, the probability of a Fed rate cut in September by at least 25 basis points has decreased to 52%, down from 67% a week earlier.

Investors will likely closely monitor key US inflation data, which is due later in the North American session. The US headline and core CPI figures for May are projected to show year-over-year increases of 3.4% and 3.5%, respectively.

On Kiwi’s front, consumer inflation remained steady in May, while producer price deflation eased in China, a major trade partner of New Zealand. This situation suggests a need for additional stimulus to boost demand. China's Consumer Price Index (CPI) remained consistent at a 0.3% increase year-over-year in May, falling short of the expected 0.4% rise. On a monthly basis, Chinese CPI decreased by 0.1%, compared to a 0.1% increase in April.

Despite a weakening economy, high interest rates in New Zealand have continued to support the New Zealand Dollar (NZD). The Reserve Bank of New Zealand (RBNZ) is anticipated to maintain its current policy stance until at least mid-2025.