The NZD/USD pair has rebounded by approximately 35 pips from its Asian session low, maintaining a positive trend for the second consecutive day on Tuesday. Currently trading in the range of 0.6210-0.6215, the pair draws support from a modest weakness in the US Dollar (USD).
The USD Index (DXY), which tracks the performance of the Greenback against a basket of currencies, has halted its five-day winning streak, reaching a nearly two-week high. Profit-taking seems to be the primary reason for the USD’s downtick, as traders eagerly anticipate hints on the Federal Reserve’s (Fed) future rate-hike plans.
Following the widely anticipated 25 bps lift-off at the recent two-day FOMC policy meeting, the markets have scaled back expectations of further rate hikes.
However, uncertainty remains regarding whether the US central bank will adopt a more dovish policy stance or stick to its forecast of a 50 bps rate hike by year-end. Investors will closely focus on the accompanying policy statement and remarks from Fed Chair Jerome Powell.
The outlook for the USD will significantly impact the near-term price dynamics for NZD/USD, determining its next directional move. Concerns over a global economic downturn, worsening US-China relations, and geopolitical risks may continue to support the safe-haven USD, potentially limiting significant gains for the risk-sensitive Kiwi. This calls for caution among aggressive bullish traders.
As the market gears up for the central bank event risk, the release of the Conference Board’s US Consumer Confidence Index and Richmond Manufacturing Index during the early North American session could provide further impetus to the NZD/USD pair.
Additionally, this week’s busy US economic calendar includes the Advance Q2 GDP print and the Core PCE Price Index, the Fed’s preferred inflation gauge, which is likely to introduce volatility to the markets.
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