NZD/USD bounces back from 0.6050 in countdown to NZ Q2 Inflation

• NZD/USD recovers some intraday losses as the US Dollar remains under pressure due to firm Fed rate-cut bets.
• Fed Powell recognized the need for more soft inflation data before pivoting to policy normalization.
• NZ Q2 inflation is estimated to have grown steadily by 0.6%.

The NZD/USD pair rebound strongly after discovering buying support near two-month low around 0.6050 in Tuesday’s European session. The Kiwi asset recovers as the US Dollar (USD) remains on the backfoot due to firm expectations that the Federal Reserve (Fed) will start cutting its key interest rates from the September meeting.

The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, struggles to hold its immediate support of 104.00. Meanwhile, investors’ higher risk appetite due to increasing Fed rate-cut prospects has underpinned risk-sensitive assets. S&P 500 futures have posted some losses in European trading hours.

Signs of improving Fed officials’ confidence in the progress in disinflation have boosted expectations for Fed rate cuts in September. Fed Chair Jerome Powell said in his speech at the Economic Club of Washington on Monday, "We've had three better readings, and if you average them, that's a pretty good place," Reuters reported.

Separately, San Francisco Federal Reserve Bank President Mary Daly said, “confidence is growing” that inflation is heading towards 2% target. However, she denied providing a guidance on timeframe for rate cuts.

On the economic front, investors await the United States (US) Retail Sales data for June, which will be published at 12:30 GMT. The report is expected to show that monthly Retail Sales remained stagnant after a meager growth of 0.1% in May.

In the New Zealand region, investors await the Q2 Consumer Price Index (CPI), which will provide cues about when the Reserve Bank of New Zealand (RBNZ) will start reducing interest rates. NZ inflation is estimated to have grown at a steady pace of 0.6%. Annually, price pressures are expected to have decelerated to 3.5% from the former release of 4.0%.