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.

Sagar Dua FXStreet

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).

Economic Indicator

Business NZ PMI

The Business NZ Performance of Manufacturing Index (PMI), released by Business NZ on a monthly basis, is a leading indicator gauging business activity in New Zealand’s manufacturing sector. The data is derived from surveys of senior executives at private-sector companies. Survey responses reflect the change, if any, in the current month compared to the previous month and can anticipate changing trends in official data series such as Gross Domestic Product (GDP), industrial production or employment.The index varies between 0 and 100, with levels of 50.0 signaling no change over the previous month. A reading above 50 indicates that the manufacturing economy is generally expanding, a bullish sign for the New Zealand Dollar (NZD). Meanwhile, a reading below 50 signals that activity among goods producers is generally declining, which is seen as bearish for NZD.

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