Kevin Backlund
TOKYO (Reuters) – The dollar rebounded from a three-week low on Tuesday after Federal Reserve Chairman Jerome Powell sounded cautious about when the U.S. might cut interest rates, helping to push the dollar higher.
The New Zealand dollar weakened after the central bank expressed confidence that inflation will return to its target range this year, raising hopes of sooner policy easing.
During his first day of congressional testimony last night, Chairman Powell said that cutting interest rates would not be appropriate until the Fed has “greater confidence” that inflation is heading toward its 2% target.
But he also noted the weakening job market and said the focus can no longer be solely on inflation because “we now face risks on two sides.”
The dollar index, which tracks the greenback’s relative value against six major currencies including the euro and yen, was flat at 105.14 after rising about 0.1% on Tuesday. On Monday, it had fallen to its lowest level since June 13 after an unexpectedly weak U.S. jobs report.
Traders now expect about a 73% chance of a rate cut by September, down from 76% a day ago, and a second cut is all but priced in by December.
“Powell was careful not to pre-commit to a path that could easily be reversed by the flow of data,” said Taylor Nugent, senior market economist at National Australia Bank.
“The market is looking at September as the kickoff date for the economic recovery, but with three CPI releases and two jobs reports remaining, it’s unlikely prices will rise any further and things could soon slow.”
Powell is scheduled to speak to the House of Representatives later in the day following his testimony in the Senate. June CPI data is due to be released on Thursday.
The dollar rose 0.13% to 161.525 yen.
The euro was flat at $1.0815.
New Zealand’s kiwi fell 0.55% to $0.60915, further away from Monday’s three-week high of $0.6171.
The Australian dollar rose 0.5% against neighboring New Zealand dollar, reaching NZ$1.1065 for the first time since February 2023.
The Reserve Bank of New Zealand left interest rates on hold as widely expected but expressed confidence that inflation would return to its target later this year. When it last met in May, policymakers had hinted at the possibility of further rate hikes.
“It was less hawkish than May but more dovish,” said Imre Speiser, a strategist at Westpac.
“They are essentially preparing to consider cutting rates.”
The Australian dollar was down 0.1 percent at $0.67345, but remains near Monday’s six-month high of $0.67615.
(Reporting by Kevin Buckland; Additional reporting by Tom Westbrook; Editing by Sam Holmes and Shelley Jacob Phillips)
