NZD/USD traders get set for US PCE, eye the Fed as well as key NZ wages next week

NZD/USD is currently trading at 0.6500 and is 0.3% higher at the start of Friday with the bird taking flight on a softer US Dollar ahead of key data for the US session ahead. The pair has rallied from a low of 0.6482 to a high of 0.6506  so far, reaching the highs of Wednesday with the multi-month highs in sight that were made following New Zealand's Consumer Inflation data that held near three-decade highs in the fourth quarter.

New Zealand’s annual inflation stood at 7.2% in the December quarter, higher than market expectations for a 7.1% rise but below the Reserve Bank of New Zealand’s forecast of 7.5% Nevertheless, this was bolstering expectations of less aggressive interest rate hikes in the coming months. There is sentiment for only a 50 basis point rate hike in February after delivering a record 75 basis point increase in November.

Meanwhile, the focus is back on the Federal reserve which will make its interest rate decision on February 1. On Thursday, the US Gross Domestic Product data reading was strong and this will give the members of the Federal Open Market Committee plenty to consider as it enters its policy discussions next week. The advanced Q4 GDP came in slightly stronger than expected at 2.9% vs 3.2% in Q3. 

Analysts at ANZ Bank said that the upcoming personal income, expenditure and deflator data (due out tonight) is arguably more important. ''Consensus expects a 0.1% decline in real personal spending. That would be the first decline in 12 months and the first fall that was not driven by COVID-19 restrictions for quite a few years,'' the analysts argued. ''The core deflator is forecast at 0.3% MoM with annual inflation at 4.4% YoY. That would be the lowest print since October 2021, and while still too high would sit well with the idea of the FOMC entering a more considered phase of the tightening cycle.''

Key data for NZ coming up

Looking ahead, the New Zealand fourth quarter labour market data (out next week) where the wages will be monitored. Analysts at ANZ Bank said that the RBNZ will have a little more scope to dial back the pace of OCR hikes if these wage spirals were to cool as the central bank feels out an appropriate level for the OCR where the MPC can comfortably “watch, worry and wait”. ''We think that speaks to a 50bp hike in February, and a peak of 5.25%.''