NZD/USD extends its gains to near 0.6110 ahead of US PMI data

• NZD/USD gains ground as US Dollar loses ground on lower US bond yields.
• Kiwi CPI YoY came above the RBNZ’s target 1-3% target range at 4.7% in Q4.
• Market expects no adjustment in the Fed’s monetary policy in February’s meeting.

NZD/USD capitalizes on its intraday gains as the US Dollar (USD) declines after recording profits in the previous two sessions. The NZD/USD pair trades around the 0.6110 during the early European hours on Wednesday. Furthermore, the Consumer Price Index (CPI) data for the New Zealand Dollar (Kiwi), released on Wednesday, showed a year-over-year figure of 4.7% in the fourth quarter, aligning with expectations. However, this marked a decrease from the previous reading of 5.6%.

Despite the decline, consumer inflation remains above the Reserve Bank of New Zealand's (RBNZ) target range of 1.0% to 3.0%. The elevated level of consumer inflation, above the RBNZ's target range, reduces the likelihood of an immediate interest rate cut by the RBNZ. This, in turn, could provide some support to the NZD/USD pair as the central bank may exercise caution in implementing a rate cut given the persistently higher inflationary pressures.

The US Dollar Index (DXY) is seeing a decline, approaching the 103.40 level, while the 2-year and 10-year yields on US bond coupons are reported at 4.32% and 4.10%, respectively, at the time of writing. This suggests a movement in the bond market that may be influencing the performance of the US Dollar. Furthermore, S&P Global Purchasing Managers Index (PMI) data from the United States (US) will be eyed on Wednesday.

In terms of market sentiment, there is a prevailing notion of reduced probability for a rate cut by the Federal Reserve (Fed) in March. However, former St. Louis Fed President James Bullard holds a divergent view, suggesting that the Fed might implement interest rate cuts even before inflation reaches 2.0%. Bullard speculates that these cuts could occur as early as March.