NZD stretches higher to near 0.5980 on dovish comments from Fed’s Powell, US ISM PMI eyed

• NZD/USD gains ground as the Fed is expected to initiate rate cuts from June.
• Fed Chair Powell noted that the recent US inflation data confirms the Fed's position on rate cuts in 2024.
• NZD cheers encouraging Chinese Purchasing Managers Index PMI figures.

NZD/USD extends its gains for the second consecutive session on Monday, edging higher to near 0.5980 during the Asian trading hours. The NZD/USD pair responded positively to the dovish comments made by Federal Reserve (Fed) Chairman Jerome Powell on Friday. Powell noted that the recent Personal Consumption Expenditures Price Index (PCE) data from the United States (US) was in line with expectations, confirming the Fed's position on potential interest rate cuts for the year.

Federal Reserve Board Governor Christopher Waller has reiterated his stance that there is "no rush" to enact rate cuts, particularly in light of ongoing inflationary pressures. Furthermore, San Francisco Fed President Mary C. Daly has echoed this sentiment, emphasizing that while the Fed is prepared to adjust rates based on data, there is no immediate need to do so given the robustness of the US economy and the minimal risk of a downturn.

US Dollar Index (DXY) encounters challenges on lower US Treasury yields. DXY hovers around 104.50 with the 2-year and 10-year yields on US bond coupons standing at 4.60% and 4.19%, respectively, at the time of writing. Fed officials maintain projections of three rate cuts this year. Market participants anticipate the first of these cuts to materialize at the June meeting.

On the other side, the New Zealand Dollar (NZD) experiences downward pressure amid speculation that the Reserve Bank of New Zealand (RBNZ) may commence policy rate cuts starting from early next year.

Furthermore, RBNZ Governor Adrian Orr has indicated that the central bank is making progress towards bringing inflation back within the target range, while also suggesting that interest rates have reached their peak and rate cuts are becoming increasingly likely.

Additionally, the Kiwi Dollar (NZD) was bolstered by positive Chinese Purchasing Managers Index (PMI) figures, revealing that Chinese manufacturing activity witnessed its first expansion in six months in March.

On Monday, China’s Caixin Manufacturing PMI came in at 51.1, against the expected 51.0 and 50.9 prior. On Sunday, China's National Bureau of Statistics (NBS) Manufacturing PMI rose to 50.8 in March from 49.1 in the prior month. Additionally, the NBS Non-Manufacturing PMI increased to 53.0 in March from 51.4 in February.

Traders could turn cautious ahead of ISM Manufacturing Purchasing Managers Index (PMI) data from the United States (US) scheduled to be released later in the North American session. On Thursday, Building Permits will be released by Statistics New Zealand.