The NZD/USD pair is holding steady around 0.6095 during the early Asian session on Friday. However, potential gains for the pair may be curtailed as stronger-than-expected US inflation data for September diminishes the likelihood of aggressive interest rate cuts from the Federal Reserve, subsequently supporting the US dollar. Market participants are now looking ahead to the release of the Producer Price Index (PPI) and the preliminary Michigan Consumer Sentiment Index later today.
US inflation figures surprised analysts in September, with the Consumer Price Index (CPI) increasing by 2.4% year-over-year, slightly down from 2.5% in August. The core CPI, excluding food and energy, rose 3.3% year-over-year, surpassing both the previous figure of 3.2% and the expected 3.2%. This unexpected inflation uptick could bolster the US dollar and limit upward movement for the NZD/USD pair.
Despite the modest increase in inflation, it is unlikely to prevent the Fed from further interest rate cuts this year. However, the probability of a 50 basis point reduction has significantly decreased following last week’s robust US Nonfarm Payrolls report. According to the CME FedWatch Tool, markets are now estimating an 83.3% chance of a 25 basis point rate cut in November.
New York Fed President John Williams indicated on Thursday that he anticipates further rate cuts as inflation pressures ease and the economy remains stable. Chicago Fed President Austan Goolsbee echoed this sentiment, forecasting a series of cuts over the next year to 18 months, citing inflation nearing the Fed’s 2% target and full employment conditions as critical factors.
Conversely, Atlanta Fed President Raphael Bostic suggested that the Fed might consider skipping a rate cut in November if upcoming economic data does not align with their target metrics.
On the New Zealand front, the dovish outlook from the Reserve Bank of New Zealand (RBNZ) may also limit the pair’s upside in the near term. Markets are anticipating more aggressive easing at the RBNZ’s November meeting, with swaps indicating an expected 45 basis points of cuts. Nevertheless, positive developments in the Chinese economy, a major trading partner for New Zealand, could provide some support for the New Zealand dollar (NZD).
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