• NZD/USD loses ground due to the increased risk aversion amid fears of an economic slowdown in the US.
• CME FedWatch tool indicates a 74.5% probability of a 50-basis point rate cut by the Fed in September.
• RBNZ is partly expected to deliver an early interest rate cut in August and fully expect one by October.

NZD/USD extends its losses for the second successive day, trading around 0.5930 during the European session on Tuesday. Growing Middle East tensions and fears of an economic slowdown in the United States (US) have dampened the appeal of risk-sensitive currencies like the New Zealand Dollar (NZD).

However, the downside of the NZD/USD pair could be limited as the US Dollar (USD) could struggle due to the expectation of a 50-basis point (bps) interest rate cut by the US Federal Reserve (Fed) in September. The CME FedWatch tool indicates a 74.5% probability of this relatively larger cut occurring at the September meeting, a significant increase from the 11.4% chance reported a week earlier.

According to Reuters, Federal Reserve Bank of San Francisco President Mary Daly expressed increased confidence on Monday that US inflation is moving towards the Fed's 2% target. Daly noted that “risks to the Fed's mandates are becoming more balanced and that there is openness to the possibility of cutting rates in upcoming meetings.”