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Market News After US Wholesale Inflation, the NZD/USD Extends Losses Near 0.6020 As Attention Shifts to CPI

After US Wholesale Inflation, the NZD/USD Extends Losses Near 0.6020 As Attention Shifts to CPI

The NZD/USD continues to decline in the wake of positive US data. A decline in the annual rate of the US CPI is anticipated for September. The US Dollar encounters obstacles notwithstanding the unexpected surge in wholesale inflation in the United States.

TOP1 Markets Analyst
2023-10-12
9580

 NZD:USD 2.png

 

Following the termination of a five-day winning sequence, the NZD/USD pair extends its decline, retreating from its two-month high. On Thursday, the spot is trading lower around 0.6020 during the early Asian session. The pair is encountering difficulties in the wake of the FOMC minutes and the unexpectedly high wholesale inflation in the United States.

 

The US Producer Price Index (PPI) increased by 2.2% in September, exceeding expectations by 1.6%. The increase was from 2.0% to 2.2%. The true suspense develops up until the release of the Consumer Price Index (CPI) on Thursday. Predictions indicate that the annual rate may decline from 3.7% to 3.6% in September. Expect some degree of market turbulence. Furthermore, be on the lookout for the weekly report on jobless claims.

 

The minutes of the Federal Open Market Committee (FOMC) revealed a divergence of opinions, with one member highlighting the importance of data-driven approaches and the other proposing that a significant increase in inflation would be required to achieve agreement on further interest rate increases.

 

Certain participants articulated the opinion that as the policy rate nears or reaches its maximum, monetary policy communications and decisions should shift their focus from determining the magnitude of rate hikes to specifying the timeframe for sustaining the policy rate at restrictive levels.

 

There is considerable speculation regarding whether the US Federal Reserve (Fed) will forego a rate increase; this rumour is fueled by officials' neutral stances and dovish remarks.

 

Christopher Waller, the governor of the Federal Reserve, has recommended exercising caution regarding rate developments, stating that a contraction of financial markets "would do some of the work for us." In the interim, Federal Reserve Governor Michelle Bowman has articulated her inclination towards an additional increase in interest rates, citing the persistence of inflation surpassing the 2% target set by the Fed. The divergent perspectives present within the Federal Reserve add to the intricacy of the present economic environment.

 

At the time of writing, the US Dollar Index (DXY) was struggling to maintain its position near 105.70 due to disappointing US Treasury yields. The yield on 10-year US Treasury bonds is 4.56 percent as of this writing.

 

The Food Price Index (FPI), a metric utilised by Statistics New Zealand to assess fluctuations in food prices, indicated a decline of 0.4% in September, contrasted with the 0.5% surge recorded in August. Additionally, investors will be monitoring the Business NZ PMI on Friday in an effort to gain additional insights into the economic climate.

 

At its most recent policy meeting, the Reserve Bank of New Zealand (RBNZ) decided to maintain the Official Cash Rate (OCR) at 5.5%. As emphasised in the RBNZ statement, the central bank acknowledged that interest rates may need to be maintained at a restrictive level for an extended period.

 

It is highly probable that this position contributed to the Kiwi pair's recent strong performance.

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