NZD/USD appreciates to near 0.6100 as traders await US inflation

NZD/USD rebounds ahead of US Consumer Price Index (CPI) data scheduled for Thursday.
The US core CPI is expected to remain steady at 3.4% year-over-year in June.
The New Zealand Dollar may limit its upside due to dovish sentiment surrounding the RBNZ.

Akhtar Faruqui FXStreet

NZD/USD recovers its recent losses, trading around 0.6090 during the European session on Thursday. Traders await the release of the upcoming US Consumer Price Index (CPI) data for June, scheduled for release on Thursday, for more clarity on the Federal Reserve's (Fed) monetary policy direction.

Market forecasts generally predict that the annualized US core CPI for the year ending in June will remain steady at 3.4%. Meanwhile, headline CPI inflation is expected to increase to 0.1% month-over-month in June, compared to the previous flat reading of 0.0%.

Meanwhile, on Wednesday, Federal Reserve (Fed) Chairman Jerome Powell underscored the importance of closely monitoring the labor market, highlighting its significant deterioration. Additionally, Powell expressed confidence in the downward trend of inflation, following his remarks on Tuesday that emphasized the necessity of further data to strengthen confidence in the inflation outlook.

The New Zealand Dollar (NZD) faced pressure following the Reserve Bank of New Zealand's (RBNZ) dovish monetary policy statement. The central bank held its cash rate steady at 5.5% on Wednesday as expected but hinted at possible rate cuts in August if inflation decreases as anticipated.

ING’s FX strategist Francesco Pesole observed, "The Bank displayed greater confidence in disinflation in the statement, noting that 'restrictive monetary policy has significantly reduced consumer price inflation.”

Read the full article: A surprise dovish tilt by the RBNZ – ING

Economic Indicator

Consumer Price Index ex Food & Energy (YoY)

Inflationary or deflationary tendencies are measured by periodically summing the prices of a basket of representative goods and services and presenting the data as the Consumer Price Index (CPI). CPI data is compiled on a monthly basis and released by the US Department of Labor Statistics. The YoY reading compares the prices of goods in the reference month to the same month a year earlier. The CPI Ex Food & Energy excludes the so-called more volatile food and energy components to give a more accurate measurement of price pressures. Generally speaking, a high reading is bullish for the US Dollar (USD), while a low reading is seen as bearish.

Why it matters to traders?

The US Federal Reserve has a dual mandate of maintaining price stability and maximum employment. According to such mandate, inflation should be at around 2% YoY and has become the weakest pillar of the central bank’s directive ever since the world suffered a pandemic, which extends to these days. Price pressures keep rising amid supply-chain issues and bottlenecks, with the Consumer Price Index (CPI) hanging at multi-decade highs. The Fed has already taken measures to tame inflation and is expected to maintain an aggressive stance in the foreseeable future.

Author

Akhtar Faruqui

FXStreet

Akhtar Faruqui is a Forex Analyst based in New Delhi, India. With a keen eye for market trends and a passion for dissecting complex financial dynamics, he is dedicated to delivering accurate and insightful Forex news and analysis.

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