NZD/USD weakens below 0.6150, investors await the US CPI, Fed rate decision

The NZD/USD pair trades on a softer note around 0.6130 on Tuesday during the early Asian session. The rebound of the USD Index (DXY) above the 105.00 barrier drags the pair lower. Amid the absence of top-tier economic data from New Zealand, the NZD/USD pair will be influenced by the USD. The US Consumer Price Index (CPI) inflation data and the Federal Reserve (Fed) monetary policy meeting will take center stage on Wednesday. 

Inflation in the United States remained uncomfortably high in the first three months of this year, making it more complicated for the US Federal Reserve (Fed) to cut the interest rate. Even though CPI inflation eased in April, Fed officials prefer to wait for more evidence before cutting their benchmark rate. If the May inflation report on Wednesday shows further signs of improvement, it might trigger the Fed to ease policy in the coming months. Rate cuts would eventually lead to the weakening of the US Dollar (USD), which might create a tailwind for NZD/USD. 

However, the strong employment report last week raised the bet that the Fed might provide a more hawkish policy update and signal a delay to rate-cut plans as inflation remains elevated. MUFG analysts said "the power of the U.S. jobs data ... reinforces the risk of the Fed remaining on the sidelines for longer.”

On the other hand, the hawkish stance from the Reserve Bank of New Zealand (RBNZ) might continue to lift the New Zealand Dollar (NZD) against the USD. The New Zealand central bank is expected to maintain its current policy stance until at least mid-2025, aiming for a comprehensive evaluation of data.