NZD/USD climbs to near 0.6150 after Fed Chair Powell remarks on rate cuts

• NZD/USD extends gains on risk appetite after Fed Powell commented on rate cuts.
• CME FedWatch Tool indicates a 55.8% probability of a 25 bps rate cut in June.
• New Zealand Dollar might have received support from upbeat Chinese Trade data.

NZD/USD continues to advance for a second consecutive session on Thursday, largely driven by weakness in the US dollar (USD) amid improved risk appetite. The pair clings to near 0.6150 during the early European session on Thursday.

Federal Reserve (Fed) Chair Jerome Powell indicated that the central bank could initiate rate cuts at some point in 2024 during his testimony before the House Financial Services Committee. However, Powell stated that the Federal Open Market Committee (FOMC) does not anticipate it being suitable to lower the target range until it has attained a higher level of assurance that inflation is consistently progressing towards the 2% target.

The US Dollar Index (DXY) loses ground for the fifth successive session despite stable US Treasury yields. The DXY trades lower to near 103.23 with 2-year and 10-year yields on US bond coupons standing at 4.56% and 4.11%, respectively. CME FedWatch Tool suggests a 5.0% probability of a 25 basis points rate cut in March, while the likelihood of cuts in May and June stands at 19.3% and 55.8%, respectively.

The antipodean currency New Zealand Dollar (NZD) could have cheered the positive bias surrounding the Chinese economy, highlighted by the Trade Balance data. China's Trade Balance for February surged to $125.16 billion, surpassing expectations of $103.7 billion and the previous figure of $75.34 billion. Additionally, year-on-year imports and exports increased by 3.5% and 7.1%, respectively.

Paul Conway, the chief economist at the Reserve Bank of New Zealand (RBNZ), hinted that the central bank could move to cut interest rates sooner than previously expected should the US Federal Reserve opt for monetary easing later in the year. However, RBNZ Governor Adrian Orr's recent affirmation of the central bank's intention to commence policy normalization in 2025. Orr cited persistent inflationary pressures as grounds for maintaining a restrictive monetary policy stance in the near term.