NZD/USD advances to near 0.6200 due to risk-on mood, Fed interest rate decision awaited

• NZD/USD appreciates due to improved risk sentiment ahead of the Federal Reserve's anticipated interest rate cut on Wednesday.
• Lower US Treasury yields added to the downward pressure on the US Dollar.
• New Zealand's Current Account deficit expanded to NZD 4.826 billion in Q2, from the previous deficit of NZD 3.825 billion.

NZD/USD edges higher to near 0.6200 during the early European hours on Wednesday. The upside of the NZD/USD pair could be attributed to the improved risk sentiment ahead of the Federal Open Market Committee's (FOMC) monetary policy meeting scheduled for Wednesday.

The US Dollar (USD) loses ground amid rising expectations that the US Federal Reserve (Fed) may announce a substantial 50 basis point rate cut on Wednesday. The CME FedWatch Tool indicates that markets are assigning a 37.0% probability to a 25-basis-point interest rate cut, while the likelihood of a 50 basis point cut has risen to 63.0%, up from 62.0% just the previous day.

Additionally, lower US Treasury yields contribute to the downward pressure for the Greenback. The US Dollar Index (DXY), which measures the value of the US Dollar (USD) against other six major currencies, retraces its recent gains from the previous session. The DXY trades around 100.80 with 2-year and 10-year yields on US government bonds standing at 3.60% and 3.64%, respectively, at the time of writing.

UOB Group FX strategists Quek Ser Leang and Lee Sue Ann highlighted that the New Zealand Dollar (NZD) is unlikely to see significant further gains in the short term. Instead, they expect the NZD to trade within a range of 0.6160 to 0.6205. Over the longer term, they anticipate a broader trading range between 0.6135 and 0.6235.

On Wednesday, New Zealand's Current Account deficit expanded to NZD 4.826 billion in the second quarter, up from a deficit of NZD 3.825 billion in the previous quarter. The Q2 deficit exceeded market expectations, which had predicted a trade deficit of NZD 4.0 billion.

Additionally, traders will be closely monitoring New Zealand's Gross Domestic Product (GDP) data for the second quarter, set to be released on Thursday. The GDP is expected to contract by 0.4% quarter-on-quarter in Q2, following a 0.2% expansion in Q1. On an annual basis, economic growth is projected to decline by 0.5%, compared to the previous 0.3% growth.