NZD/USD holds ground near 0.6150 as RBNZ expects to keep OCR rates unchanged

• NZD/USD holds ground after NZIER Monetary Policy Shadow Board advised the RBNZ to keep the OCR unchanged at 5.5%.
• The US Dollar faces a challenge as softer US inflation sparked speculation about the Fed’s rate cuts in 2024.
• Fed’s Michelle Bowman suggested that the inflation decline last year was temporary and denied any further progress on this in 2024.

The NZD/USD pair trades around 0.6130 during Asian trading hours on Monday as investors anticipate the Reserve Bank of New Zealand's (RBNZ) policy meeting on Wednesday. The RBNZ is expected to maintain its Official Cash Rate at 5.5% for the seventh consecutive meeting. Policymakers are likely to emphasize the importance of keeping the policy restrictive for an extended period to bring inflation back to the 1-3% target range.

Additionally, on Monday, the New Zealand Institute of Economic Research (NZIER) Monetary Policy Shadow Board advised the RBNZ to keep the Official Cash Rate unchanged in the forthcoming Monetary Policy Statement, citing ongoing concerns about persistent high inflation.

On the other side, US consumer inflation eased to 0.3% in April, sparking speculation about potential rate cuts by the Federal Reserve (Fed) in 2024. However, the Fed remains cautious about inflation and the prospect of rate adjustments this year.

According to the CME FedWatch Tool, the likelihood of the Federal Reserve delivering a 25 basis-point rate cut in September has slightly increased to 49.0%, up from 48.6% a week ago. This potential easing of monetary policy by the central bank could undermine the US Dollar and bolster the NZD/USD pair.

Federal Reserve Board of Governors member Michelle Bowman made waves on Friday by suggesting that progress on inflation may not be as steady as anticipated. Bowman indicated that last year's observed inflation decline was temporary and that there hasn't been further progress this year. Additionally, Richmond Fed President Thomas Barkin noted that while inflation is moderating, achieving the Fed's 2% target will require more time.