NZD/USD drops to near 0.5700 as traders expect RBNZ to deliver a bumper rate cut

• NZD/USD faces challenges as the US Dollar strengthens amid rising Treasury yields.
• Fed Governor Michelle Bowman warned that upside inflation risks persist, stressing the need for more clarity before considering rate cuts.
• The RBNZ is expected to cut its Official Cash Rate by 50 basis points, bringing it down to 3.75%, at Wednesday's meeting.

NZD/USD retreats after three consecutive days of gains, trading around 0.5710 during European hours on Tuesday. The decline is driven by a stronger US Dollar as Treasury yields rise.

The US Dollar Index (DXY), which measures the USD against six major currencies, edges higher to 106.90 after three days of losses. Meanwhile, US Treasury yields stand at 4.27% for the 2-year note and 4.50% for the 10-year note.

On Monday, Federal Reserve Governor Michelle Bowman cautioned about persistent upside risks and emphasized the need for more certainty before considering rate cuts. Fed Governor Christopher Waller acknowledged inflation improvements but noted the slow progress, stressing the importance of data-driven decisions amid policy uncertainty.

However, the NZD/USD pair found some support following US President Donald Trump’s decision to delay reciprocal tariffs. Additionally, a US retail sales report fueled speculation that the Federal Reserve might cut interest rates later this year despite ongoing inflation concerns.

The New Zealand Dollar (NZD) remains under pressure as expectations grow for a significant rate cut by the Reserve Bank of New Zealand (RBNZ) at its Wednesday meeting. The RBNZ is anticipated to slash the Official Cash Rate (OCR) by 50 basis points to 3.75%.

Traders will closely watch RBNZ Governor Adrian Orr’s press conference after the rate decision for insights into the central bank’s future policy stance. Any dovish signals could add to selling pressure on the Kiwi Dollar.