NZD/USD follows the downward path toward 0.5900, RBNZ policy decision eyed

• NZD/USD weakens due to the Fed’s hawkish tone regarding interest rates trajectory.
• Market expects RBNZ to maintain rates at the current level of 5.50%.
• US Treasury yields rose after the US averted a partial government shutdown, bolstering the US Dollar.

NZD/USD extends its losses on the second consecutive day, trading around 0.5910 during the Asian session on Tuesday. The US Dollar Index (DXY) climbed to an 11-month high, trading around 107.10 by the press time.

The Greenback strengthens on the back of higher US Treasury yield. The 10-year US Treasury yield rose above its highest level since 2007 after the United States (US) averted a partial government shutdown. The spot price stands at 4.68% at the time of writing.

Additionally, the market caution surrounding the US Federal Reserve’s (Fed) interest rates trajectory is reinforcing the positive sentiment for US Dollar (USD).

Furthermore, the mixed United States (US) data released on Monday, reinforced the Greenback. US ISM Manufacturing PMI improved to 49.0 in September from 47.6 in the previous reading, above the market consensus of 47.7. Manufacturing Prices Paid fell significantly from 48.4 to 43.8. The Employment Index rose from 48.4 to 51.2.

Federal Reserve (Fed) Governor Michelle Bowman expressed on Monday that it seems appropriate to further increase the policy rate and sustain it at restrictive levels for an extended period.

In contrast, Fed Vice Chair for Supervision Michael Barr stressed a cautious approach to monetary policy. Barr highlighted the importance of considering interest rates trajectory. Nevertheless, Barr is optimistic that the Fed can navigate inflation without causing significant harm to the job market.

Traders await the US employment data, with the release of the ADP report on Wednesday and the Nonfarm Payrolls on Friday.

On the Kiwi side, the Reserve Bank of New Zealand (RBNZ) is set to announce its interest rate decision on Wednesday. The market anticipates that the RBNZ will maintain rates at the current level of 5.50%. However, traders will closely watch the accompanying statement for any indications of a potential future rate hike, which could limit the downside of the Kiwi pair.

The New Zealand Institute of Economic Research reported the business outlook for the third quarter. NZIER Business Confidence data reported a decrease of 52%, which is an improvement from the previous 63% decline.