After The Anticipated Rate Reduction By The People's Bank Of China, the NZD/USD Exchange Rate Has Remained In a Tight Range Near 0.6200

During the first half of Tuesday's Asian session, the NZD/USD pair oscillates between slight gains and losses, hovering around the 0.6200 mark.

The US Dollar (USD) builds on its rebound from a one-month high reached last Friday and advances for a third consecutive day, which is viewed as a significant factor operating as a headwind for the NZD/USD pair. The USD increase can be attributed to a moderate increase in US Treasury bond yields, which was bolstered by rising expectations for another 25 basis point rate hike at the July FOMC meeting. This is a result of the Federal Reserve's (Fed) hawkish outlook, which indicates that borrowing costs may still need to rise by up to 50 basis points (bps) by the end of the year, and it continues to support the dollar.

In addition, a generally weakened tone on the equity markets bolsters the Greenback's relative safe-haven status and limits the upside for the risk-averse New Zealand dollar. Concerns about a global economic downturn, particularly in China, continue to weigh on investor sentiment and overshadow reports that China is contemplating a broad stimulus package to bolster economic support. Moreover, the People's Bank of China reduces one-year and five-year Loan Prime Rates (LPRs) on Tuesday, though this has little effect on investors or the NZD/USD pair.

This, coupled with the Reserve Bank of New Zealand's (RBNZ) explicit signal that it had completed its most aggressive rate-hiking cycle since 1999, could further weaken the New Zealand Dollar (NZD). In addition, Grant Robertson, the finance minister of New Zealand, and the Treasury criticised higher interest rates. However, expectations that the Federal Reserve is nearing the end of its policy tightening cycle could contain the USD and limit losses for the NZD/USD pair, at least for the time being. Traders may also refrain from placing aggressive wagers prior to Fed Chair Jerome Powell's testimony before Congress.

Powell's remarks will be scrutinised closely for hints about the Fed's future rate-hike path, which will in turn influence USD price dynamics and help determine the near-term trajectory of the NZD/USD pair. However, the aforementioned fundamental environment appears to favour bearish traders and suggests that the recent powerful uptrend witnessed over the past two weeks or so has reached its conclusion. Nevertheless, it will be prudent to wait for some follow-through selling before positioning for any significant corrective decline from last Friday's monthly peak.