• NZD/USD drops sharply to near 0.6160 despite diminishing Fed small rate cut bets weighing on the US Dollar.
• Slower-than-expected US annual PPI boosted Fed 50 bps rate cut prospects.
• The RBNZ is expected to cut interest rates in both policy meetings in October and November this year.

The NZD/USD pair falls to near 0.6160 in Friday’s North American session. The Kiwi asset declines despite the US Dollar (USD) weakens as traders raise bets for the Federal Reserve (Fed) reducing interest rates by 50 basis points (bps) on Thursday.

The debate over the Fed’s likely interest rate cut size returns after Thursday’s United States (US) Producer Price Index (PPI) report for August showed that the annual producer inflation decelerated further.

According to the CME FedWatch tool, the probability of the Fed reducing interest rates by 50 bps to 4.75%-5.00% in September has increased sharply to 45% from 28% a day ago.

The PPI report showed that annual headline producer inflation grew by 1.7%, slower than the estimates of 1.8% and the prior release of 2.1% due to falling energy prices. The core PPI – which excludes volatile food and energy prices – rose steadily by 2.4%.

A slowdown in the pace of the price rise by producers at factory gates has also prompted the risk appetite of investors. S&P 500 futures have posted decent gains in the early New York session. The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, slides below the crucial support of 101.00.