NZD/USD jumps to 0.5900 ahead of RBNZ decision

• NZD/USD rises to 0.5900 as traders believe the RBNZ will cut official interest rates from November.
• First quarter inflation in New Zealand rose 0.6%, as expected.
• Fed's Powell takes up “higher interest rates for longer” argument.

The NZD/USD pair extends its recovery to the resistance of the 0.5900 round level in the European session on Wednesday. NZD/USD strengthens as traders reprice bets supporting rate cuts by the Reserve Bank of New Zealand (RBNZ).

Investors believe that the RBNZ will begin lowering interest rates from the November meeting, rather than the October one. Market expectations that the RBNZ will begin cutting its policy rates have been heavily influenced by the expected rise in New Zealand's first quarter Consumer Price Index (CPI) data, released in the Asian session early Wednesday morning.

Stats NZ showed New Zealand inflation rose 0.6%, as expected, above the 0.5% growth recorded in the final quarter of 2023. The annual inflation figure slowed to 4.0% from the previous reading of the 4.7%. Currently, the RBNZ maintains its official interest rate at 5.5%.

The sharp improvement in market sentiment has also boosted demand for the New Zealand Dollar. S&P 500 futures have posted significant gains in the European session. The 10-year US Treasury yield is down slightly to 4.64%. The rally in the US Dollar Index (DXY) appears to have stalled near 106.40 as investors had priced in that the Federal Reserve (Fed) would be inclined to keep interest rates higher for longer.

On Tuesday, Fed Chair Jerome Powell said, “Recent data clearly have not given us greater confidence and instead indicate that it is likely to take longer than expected to achieve that confidence,” Reuters reported. In this statement, the recent data is that of consumer price inflation for March.

Currently, financial markets anticipate that the Fed will begin to reduce interest rates starting at the September meeting.