New Zealand Dollar slumps against US Dollar amid firm hawkish Fed bets

The New Zealand Dollar (NZD) experienced a decline of 0.35%, falling to approximately 0.5900 against the US Dollar (USD) during the European trading session on Tuesday. This drop occurred as the US Dollar gained strength, with markets growing more certain that the Federal Reserve (Fed) would raise interest rates during their policy meeting this month.

As of the time of writing, the US Dollar Index (DXY), which measures the strength of the US Dollar against six major currencies, increased by 0.2% to around 99.60. The performance of the US Dollar against the New Zealand Dollar was the most notable among major currencies. According to strategists at Brown Brothers Harriman, the US Dollar recovered most of its previous decline, with Federal Reserve expectations embedded in futures pricing.

The Fed funds futures price indicates a 67% chance of a 25 basis points (bps) increase on September 16, suggesting 60 bps of tightening over the next twelve months. This high level of pricing is expected to continue into the September meeting, with the August CPI on September 11 being a crucial test for the Fed's policy outlook.