- NZD/USD holds positive ground around 0.6055, adding 0.32% in Wednesday’s early European session.
- Fed’s Powell said inflation might prove to be more persistent than expected, keeping the Fed to hold rate higher for longer.
- Westpac analysts anticipate the RBNZ will leave the OCR at 5.5% at its May meeting next week.
The NZD/USD pair gains traction near 0.6055 on Wednesday during the early European trading hours. The pair edges higher for the second consecutive day and holds above the key 100-day Exponential Moving Average (EMA), supported by the softer USD Index (DXY) below the 105.00 level. The final reading of the US Consumer Price Index (CPI) and Retail Sales for April will be in the spotlight later on Wednesday.
The Federal Reserve (Fed) Chairman Jerome Powell said on Tuesday that inflation in the US might prove to be more persistent than expected, keeping the Fed holding rate higher for longer to achieve the central bank’s 2% target. Powell added that it is unlikely to hike rates more, even if the chances for rate cuts have become less. Investors have priced in nearly a 65% chance of a rate cut by the Fed in September 2024, according to the CME's FedWatch Tool.
The US Producer Price Index (PPI), wholesale inflation, hit its highest rate in a year, according to the Bureau of Labor Statistics on Tuesday. The annual PPI rose 2.2% YoY in April, compared to the 1.8% increase in March (revised from 2.1%), in line with the estimate. The Core PPI jumped 2.4% YoY in April, compared to an increase of 2.1% in the previous reading. The April CPI data might offer some hints about future monetary policy by the Fed. The hotter inflation outcome could delay the rate cut timeline for this year and lift the Greenback against its rivals.
On the Kiwi front, the Reserve Bank of New Zealand (RBNZ) will hold its meeting next week. Westpac analysts expect the RBNZ will leave the Official Cash Rate (OCR) unchanged at 5.5% at its May meeting. The New Zealand central bank is likely to remain comfortable with the forward outlook communicated in the February meeting. The markets believe that it is unlikely that the RBNZ will ease its policy before the Fed. This, in turn, might provide some support to the Kiwi and act as a tailwind for NZD/USD for the time being.
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