• NZD/USD receives support as RBNZ’s interest rate decision looms.
• The NZD’s upside could be limited due to safe-haven flows amid rising Middle-East tensions.
• The US Dollar receives support from diminished odds of a 50-basis point rate cut by the Fed.

NZD/USD extends its gains for the second consecutive day, trading around 0.6040 during the European session on Tuesday. Traders assess the Reserve Bank of New Zealand’s (RBNZ) policy decision scheduled for Wednesday. The central bank is widely expected to hold its current Official Cash Rate (OCR) at 5.5% for the ninth consecutive time.

The upbeat employment report from New Zealand last week, combined with improving signs of diminished demand from trade partner China, reduces the likelihood of a rate cut by the Reserve Bank of New Zealand on Wednesday.

The safe-haven flows might have put a cap on the upside of risk-sensitive currencies like the New Zealand Dollar (NZD) amid rising geopolitical tensions in the Middle East. Israeli forces pressed on with their operations near the southern Gaza city of Khan Younis on Monday. CBC News cited Palestinian medics saying Israeli military strikes on Khan Younis on Monday killed at least 18 people.

On the USD front, the US Federal Reserve (Fed) is expected to deliver a quarter-point interest rate cut at September’s meeting. Earlier, it was expected a 50 basis point rate cut in September. According to CME’s FedWatch Tool, the probability of 50 basis points (bps) cut in September has dropped to 50%, down from 85% last week.