NZD/USD Trims Losses Below 0.5900 Ahead of Fed Decision Tuesday

The NZD/USD pair is showing resilience, trading stronger around 0.5880 in Tuesday’s Asian session, as it recovers some losses. However, the pair's upside potential might be limited as traders await the Federal Reserve's monetary policy decision on Wednesday.

The US Federal Reserve is anticipated to maintain its interest rate range of 5.25%-5.50% during the two-day FOMC meeting concluding on Wednesday. Fed Chair Jerome Powell has indicated a desire for more evidence of inflation heading toward the 2% target before considering rate cuts.

Ryan Sweet, Chief US Economist at Oxford Economics, stated:

"The case to cut is already strong, and the Fed will likely use the July meeting to plant a seed that a cut in September is on the table."

Meanwhile, expectations of an early interest rate cut by the Reserve Bank of New Zealand (RBNZ) continue to pressure the New Zealand Dollar (NZD). Financial markets are anticipating RBNZ rate cuts, with traders pricing in 14 basis points of cuts in August, indicating a 55% probability of a rate cut soon.

Additionally, the NZD's upside may be constrained by the sluggish Chinese economy, as China is a significant trading partner for New Zealand. The Chinese GDP growth rate fell short of expectations in the second quarter, with the consumer sector facing challenges due to labor market issues and a prolonged housing slowdown.