New Zealand Dollar gathers strength above 0.5850 as CPI inflation data bolster RBNZ rate hike bets

The NZD/USD pair gains traction to around 0.5860 during the early European trading hours on Tuesday. Hotter New Zealand inflation data provide some support to the New Zealand Dollar (NZD) against the US Dollar (USD). The US ADP Employment report will be published later on Tuesday. 

New Zealand’s Consumer Price Index (CPI) rose 1.5% QoQ in the three months ended June, with the annual inflation rate rising to 4.1% from 3.1% in the previous reading, Statistics New Zealand revealed on Tuesday. It was the highest annual rate since December 2023, and the quarterly increase was the highest since September 2023.

The Kiwi strengthens against the USD following the data as money markets solidified expectations the Reserve Bank of New Zealand (RBNZ) will raise rates again. Traders expect a follow-up hike in either October or December and another one in February, according to Bloomberg.

On the US front, signs of cooling US inflation data might lower the possibility of a US rate hike later this year, weighing on the Greenback. Markets continue to anticipate no change to rates at the Fed's next meeting on July 29, with Fed funds futures pricing an implied 84.5% possibility of a hold, compared to a 61.5% chance a month ago, according to the CME FedWatch tool.