- The New Zealand Dollar extends gains on US Dollar’s weakness, nearing 0.6000.
- Soft US CPI data has boosted expectations of Fed cuts in September.
- The extended trade truce between US and China provides additional support to the NZD.
The New Zealand Dollar appreciates further on Wednesday after breaching resistance at 0.5970 (July 29, August 8 highs), and the pair advances towards the 0.6000 psychological level, boosted by risk appetite and a weaker US Dollar.
Investors are celebrating the moderate US inflation figures released on Tuesday, which have cemented expectations that the Federal Reserve will opt for a rate cut in September, to support the softening labour market. Bets on a 25 bps cut next month have increased to 95%, from 85% before the USCPI release and about 50% one month ago, according to data by the CME Fed Watch tool.
Moderate US inflation boosts hopes of Fed cuts
US Consumer Price Index figures for July revealed that yearly inflation remained steady at 2.7%, against market expectations of an uptick to 2.8%. The core inflation increased slightly above expectations, 3.1% against the consensus 3.0%, from 2.9% in June; these figures, however, did not dent investors’ hopes of lower interest rates.
The calendar is thin today, with only the conferences from Fed officials Austan Goolsbee and Raphael Bostic worth mentioning. Recent comments from these policymakers have been leaning to the dovish side; in that sense, they are unlikely to provide any significant support to the USD.
Regarding the Kiwi, no news is good news in this case. The US and China agreed to extend their trade truce for 90 days, easing tensions between the world’s largest economies and fuelling risk appetite further, to the benefit of China proxies like the New Zealand Dollar.
