NZD/USD slumps from 0.6250 as US Dollar regains ground

• NZD/USD declined to from 0.6250 after a strong recovery in the US Dollar.
• Annual US core PCE inflation is estimated to have accelerated to 2.7% in July.
• The RBNZ is expected to deliver more interest rate cuts this year.

The NZD/USD pair drops after facing selling pressure near 0.6250 in Wednesday’s North American session. The Kiwi asset falls as the US Dollar (USD) recovers strongly after posting a fresh annual low. The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, extends its recovery above 101.00 from its year-to-date low (YTD) low of 100.50.

A decent recovery in the US Dollar appears to be bolstered by uncertainty among market participants as the United States (US) core Personal Consumption Expenditure inflation (PCE) for July comes under the spotlight. This has also weighed on risk-sensitive assets.

Investors await the US PCE inflation data to get fresh cues about the Federal Reserve (Fed) interest rate cut path. Currently, traders have fully priced in market expectations for the Fed to start reducing its key borrowing rates in September, while they are doubtful over whether the potential size of the rate cut would be 25 or 50 basis points (bps).

The data from the US PCE report is expected to show that annual core inflation rose at a faster pace of 2.7% from 2.6% in June, with monthly figures growing steadily by 0.2%.

Meanwhile, investors have underpinned the US Dollar against the New Zealand Dollar (NZD), but the Kiwi’s performance against other major peers has remained firm even though market participants expect that the Reserve Bank of New Zealand (RBNZ) will cut interest rates aggressively this year. The RBNZ unexpectedly pivoted to policy-normalization two weeks back.