NZD/USD rises to 0.6120 as firm Fed rate-cut prospects weaken US Dollar

• NZD/USD gains to near 0.6120 as the US Dollar faces severe selling pressure.
• The US Dollar declines as Fed rate-cut bets soar.
• Weak Business NZ PMI boosts RBNZ’s rate-cut hopes.

The NZD/USD pair moves higher to 0.6120 in Friday’s New York session. The Kiwi asset gains as the US Dollar (USD) remains in the bearish trajectory due to strong expectations that the Federal Reserve (Fed) will start reducing interest rates from the September meeting.

The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, slumps to near the crucial support of 104.00. Meanwhile, the market sentiment remains cheerful amid firm Fed rate cut prospects. The S&P 500 has posted significant gains in the opening session, exhibiting strong risk-appetite of investors. 10-year US Treasury yields have retreated to near 4.19%.

According to the CME FedWatch tool, 30-day Federal Fund Futures pricing data shows that rate cuts in September is a done deal. The data also shows that the central bank will cut interest rates further in November or December meeting.

The expectations for Fed rate cuts have been propelled by cooling inflationary pressures. The United States (US) Consumer Price Index (CPI) report for June showed that progress in the disinflation process has resumed after a one-time blip in the first quarter.

On the contrary, US Producer Price Index (PPI) rose at a stronger pace than expected in June. Annually, headline and core PPI accelerated to 2.6% and 3.0%, respectively.

On the Asia-Pacific front, the New Zealand Dollar (NZD) remains weak due to poor Business NZ PMI data for June. The PMI data came in at 41.1, contracted significantly from the prior release of 46.6.  This has dampened the NZ economic outlook and has improved expectations of early rate cuts by the Reserve Bank of New Zealand (RBNZ).