Photo by Thomas Coker on Unsplash
 

The NZD/USD pair ticks lower during the Asian session on Tuesday and moves further away from an over one-month peak, around mid-0.5700s, touched the previous day. Spot prices currently trade near the 0.5720 region, though the fundamental backdrop warrants some caution for bearish traders and before positioning for deeper losses.

The New Zealand Dollar (NZD) might continue to draw support from the Reserve Bank of New Zealand's (RBNZ) hawkish outlook on the future policy path. The US Dollar (USD), on the other hand, languishes near a two-week low set on Monday amid bets for another rate cut by the Federal Reserve (Fed) this month, which acts as a tailwind for the NZD/USD pair. Apart from this, the upbeat market mood undermines the safe-haven buck and could benefit the risk-sensitive Kiwi.

The RBNZ delivered a fully priced 25 basis points (bps) rate cut last week and signaled an end to its easing cycle. In contrast, the recent comments from several Fed officials suggested that another interest rate cut in December is a live option. Moreover, tepid US economic data released recently indicated that growth in the world's largest economy is cooling and inflationary pressures are muted. This, in turn, backs the case for further policy easing by the Fed and favors the USD bears.

Traders, however, seem reluctant to place aggressive bets and opt to wait for this week's important US macro data, including the Personal Consumption Expenditure (PCE) Price Index on Friday. The crucial inflation data will play a key role in driving the USD demand and providing some impetus to the NZD/USD pair heading into next week's key central bank event risk – the highly anticipated two-day FOMC meeting starting next Tuesday.

More By This Author: