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NZD/USD advances toward 0.6400 with an eye on US/China inflation
The NZD/USD opens the week on a worse basis than it did on Friday, as bids have recently increased. US data submerged Treasury yields and the DXY, but Fed officials are sending different signals. China-related news stories support bulls despite a poor start to the crucial week. US and China CPI will be critical in the context of Fed hesitancy and PBOC optimism.
NZD/USD gains bids to 0.6355 as it narrows the week-opening gap to the south, having risen the highest in two months the day before. In doing so, the Kiwi pair draws cues from the market's cautious optimism in the face of generally negative US data and risk-positive headlines from China, one of New Zealand's largest consumers and the world's largest consumer of commodities.
As a reflection of sentiment, S&P 500 Futures post intraday gains of 0.20% following Friday's sharp increase, as weekend updates from US Federal Reserve (Fed) and People's Bank of China (PBOC) officials have been predominantly negative for the US Dollar.
Raphael Bostic, president of the Federal Reserve Bank of Atlanta, emphasized fears of a US economic slowdown, while Charles Evans, president emeritus of the Federal Reserve Bank of Chicago, advocated a 0.50% rate hike in December. In addition, Kansas City Fed President Esther George emphasized inflation fears, although Richmond Federal Reserve Bank President Thomas Barkin hailed the last two months of inflation readings as "a stride in the right direction" while expressing concern over the higher median figures.
It should be noted that the Fed officials' contradictory comments may be related to the disappointing US ISM Services PMI and Factory Orders data, which lowered Treasury bond yields. In contrast, price-positive news from China aids the NZD/USD pair in remaining steady.
In an interview with People's Daily published on Sunday, Guo Shuqing, party secretary of the People's Bank of China (PBOC), stated: "The world's second-largest economy is expected to rebound quickly as a result of the country's optimized Covid-19 response and the continued implementation of its economic policies."
In addition, the reopening of China's national border after a three-year hiatus and early indications of robust holiday shopping support the NZD/USD pair's upward momentum.
However, the cautious outlook before to the release of the December Consumer Price Index (CPI) from China and the US on Wednesday and Thursday, respectively, will be critical given the market's uncertainty regarding the Fed's next move and PBOC's preference for easy money policies. If inflation concerns continue well-grounded, the US Dollar may consolidate its recent losses, which might impact on the NZD/USD exchange rate.
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