NZD/USD advances to near 0.5900 ahead of US PCE inflation data

• NZD/USD gains further to near 0.5900 amid upbeat market mood.
• Investors await the US PCE inflation data for fresh cues on the monetary policy outlook.
• Cooling inflation expectations and RBNZ interest rate cut have improved NZ's Business Confidence.

The NZD/USD pair extends its upside to near 0.5900 during the Asian trading session on Friday. The Kiwi pair strengthens as the market sentiment is favorable for riskier assets on firm expectations that the Federal Reserve (Fed) will cut interest rates in the September policy meeting.

According to the CME FedWatch tool, there is an 85% chance that the Fed will reduce interest rates by 25 basis points (bps) to 4.00%-4.25% in the policy meeting in September.

On Thursday, Fed Governor Christopher Waller explicitly announced that he will support for adjustment in policy rates in the policy meeting next month. He added that there will be more cuts in next three-to-six months. The reasoning behind Waller's dovish remarks is weakening labor market conditions, which could deteriorate further and quickly.

For more cues on the interest rate outlook, investors await the US Personal Consumption Expenditure Price Index (PCE) data for July, which will be published at 12:30 GMT. Economists expect the US core PCE inflation, which is Fed's preferred inflation gauge, to have risen at a faster pace of 2.9% on year against 2.8% in June, with monthly figure rising steadily by 0.3%.

Ahead of the US PCE inflation data, the US Dollar Index (DXY), which tracks the Greenabck's value against six major currencies, trades cautiously around 98.00.

In New Zealand (NZ), the Australia and New Zealand Bank (ANZ) reported on Thursday that Business Confidence in August has improved almost two points to 49.7 from 47.8 in July, partly by cooling inflation expectations, and an interest rate cut by the Reserve Bank of New Zealand (RBNZ).

Last week, the RBNZ reduced its Official Cash Rate (OCR) by 25 bps to 3%, as expected, and guided a dovish stance on the monetary policy outlook.