NZD/USD rises to 0.6120 as firm Fed rate cut outlook weakens US Dollar

• NZD/USD rises towards 0.6120 as US Dollar faces strong selling pressure.
• US Dollar falls as Fed rate cut bets mount
• Weak New Zealand business PMI raises hopes for RBNZ rate cut.

The NZD/USD pair is up towards 0.6120 in the American session on Friday. The New Zealand Dollar is gaining ground while the US Dollar (USD) remains on a bearish trajectory due to strong expectations that the Federal Reserve (Fed) will start cutting interest rates from the September meeting.

The Dollar Index (DXY), which tracks the value of the greenback against six major currencies, is falling near the crucial support of 104.00. Meanwhile, market sentiment remains upbeat amid the Fed’s firm rate cut prospects. The S&P 500 has posted significant gains in the opening session, showing strong risk appetite from investors. The 10-year US Treasury bond yields have retreated near 4.19%.

According to the CME FedWatch tool, 30-day federal funds futures price data show that rate cuts in September are a given. The data also show that the central bank will cut interest rates further at the November or December meeting.

Expectations for Fed rate cuts have been boosted by cooling inflationary pressures. The US Consumer Price Index (CPI) report for June showed that progress in the disinflation process has resumed after a one-off stumble in the first quarter.

In contrast, the US Producer Price Index (PPI) rose at a stronger-than-expected pace in June. On an annualized basis, the headline PPI and core PPI accelerated to 2.6% and 3.0%, respectively.

On the Asia-Pacific front, the New Zealand Dollar (NZD) remains weak on the back of poor New Zealand business PMI data for June. The PMI data came in at 41.1, contracting significantly from the previous release of 46.6. This has weakened New Zealand’s economic outlook and raised expectations for early rate cuts by the Reserve Bank of New Zealand (RBNZ).