The NZD/USD pair is trading around 0.6000 as the US Dollar stabilizes following a recovery. Speculation is growing that the Fed will lower key interest rates starting in September after weak US NFP data was released. Additionally, weak labor market data in New Zealand has raised expectations of early rate cuts by the RBNZ.
In Tuesday’s European session, the Kiwi asset is trading near the psychological level of 0.6000 while the US Dollar hovers above 105.00. The US Dollar Index (DXY) has rebounded after falling to around 104.60, with investors digesting the Fed’s less hawkish comments on interest rates and disappointing labor market data for April.
The Fed has indicated that more interest rate hikes are unlikely and there is a possibility of rate cuts later this year, especially after seeing persistent price pressures in the first quarter. This has increased expectations for a rate cut in September.
Furthermore, weak labor demand and a higher unemployment rate have strengthened the belief that the Fed will adjust interest rates in September. Traders are now seeing a 67% chance of a rate cut in September, up from 46% the previous week.
On the other hand, the New Zealand Dollar’s upward momentum has slowed as investors anticipate the RBNZ shifting towards rate cuts starting in October. Initially, it was expected that the RBNZ would wait until 2025 to lower rates due to Q1 inflation data. However, with weak Q1 labor market data, there is now speculation that rate cuts may come sooner.