NZD/USD dives to 0.6070 as RBNZ communicates dovish interest-rate outlook

• NZD/USD plunges to near 0.6070 as the RBNZ delivers a dovish interest rate guidance.
• The RBNZ sees inflation returning to the 1%-3% range in the second quarter this year.
• Investors await the US inflation data for fresh cues on the rate-cut timeframe.

The NZD/USD pair slides vertically to near 0.6070 in Wednesday’s European session. The Kiwi asset faces an intense sell-off as the Reserve Bank of New Zealand (RBNZ) unexpectedly delivered a dovish guidance on interest rates with keeping the Official Cash Rate (OCR) steady at 5.5%, as expected.

The RBNZ opened doors for rate cuts amid easing consumer inflation expectations. The central bank favored for keeping the monetary policy framework restrictive but the extent of restrictiveness will be eased. Over the inflation outlook, the RBNZ sees price pressures returning in the desired range of 1%-3% in the second half of this year.

Meanwhile, the market sentiment remains firm as investors expect that the Federal Reserve (Fed) will start reducing interest rates from the September meeting. S&P 500 futures have posted decent gains in European trading hours. 10-year US Treasury yields fall to near 4.29% as Fed Chair Jerome Powell signaled in his semi-annual Congressional testimony on Tuesday that escalated inflation is not only risk for the central bank with an easing trend in job demand.

Fed Powell said, "Labor market conditions have cooled considerably compared to where they were two years ago," and added that the US “is no longer an overheated economy,” Reuters reported.

Easing US economic outlook is unfavorable for the US Dollar (USD). The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, struggles to extend recovery above 105.20.

Going forward, investors will focus on the United States (US) Consumer Price Index (CPI) data for June, which will be published on Thursday. The core CPI, which excludes volatile food and energy prices, is estimates to have grown steadily on monthly as well as annual basis.