• NZD/USD bounces back to 0.6160 as risk sentiment improves.
• Stubborn US inflation data have dented market expectations for Fed rate cuts in June.
• The consumer price inflation in the NZ economy in Q12024 is expected to rise by 0.8%.

The NZD/USD pair extends recovery to 0.6160 in Wednesday’s early European session. The Kiwi asset rises as upbeat market sentiment improves demand for risk-perceived assets.

S&P 500 futures added nominal gains in the early London session. The US Dollar Index (DXY) remains sideways slightly below 103.00. 10-year US Treasury yields have dropped to 4.14%. However, risk-sensitive assets could be under pressure as market expectations for the Federal Reserve (Fed) reducing interest rates in the June policy meeting have eased significantly.

The CME FedWatch tool shows that there is a 34% chance that the Fed will keep interest rates unchanged in the 5.25%-5.50% in June. The expectations for the Fed keeping interest rates on hold rose from Tuesday’s 28% chance after the release of hotter-than-expected Consumer Price Index (CPI) data for February.

Fed policymakers are expected to keep interest rates higher for a longer period as they have not gotten any evidence that could build confidence that inflation will return sustainably to the 2% target.

Going forward, investors will shift focus to the United States Producer Price Index (PPI) and the Retail Sales data, which will be published on Thursday.

On the New Zealand Dollar front, easing inflation expectations are expected to bring some relief for households. Latest forecasts from the Reserve Bank of New Zealand (RBNZ) show that consumer prices will rise by 0.8% in the quarter to March period. The annual inflation is projected to decline to 4.2% from 4.7% in the last quarter of 2023.