As of Tuesday, NZD/USD was trading at approximately 0.5940, marking a decline of 0.41% for the day. This decrease is largely attributed to unexpectedly high inflation figures from the United States, which is exerting downward pressure on the market. The strengthening of the U.S. dollar seems to be diminishing hopes for monetary easing by the Federal Reserve.
The U.S. Bureau of Labor Statistics revealed that the Consumer Price Index (CPI) rose to 3.8% year-over-year in April, up from 3.3% a year earlier and surpassing the anticipated 3.7%. Monthly, the CPI increased by 0.6%, in line with forecasts. Core inflation, excluding fluctuating food and energy costs, climbed to 2.8% from 2.6%, also exceeding the consensus of 2.7%.
Additionally, the report highlighted that energy prices surged by 3.8% in April, which was responsible for over 40% of the overall monthly increase in the index. The rising costs of shelter and food further underscore ongoing inflation concerns in the U.S.
On another note, U.S. private companies added about 33,000 jobs weekly in the four weeks leading up to April 25, based on ADP data, indicating a slight improvement in labor market momentum.
In reaction to the news, the US Dollar Index climbed towards 98.40, accompanied by rising U.S. Treasury yields. Investors are now contemplating the possibility that the Fed might need to persist with interest rate hikes for a longer period to curb inflation. Following the CPI release, the chance of a rate increase by December rose to 30.3%, up from 21.5% the previous day, according to the CME FedWatch tool.
The U.S. dollar is also experiencing a boost from its status as a safe haven. Geopolitical tensions in the Middle East remain significant, as President Trump indicated that the ceasefire with Iran is on “massive life support,” heightening fears of a potential military resurgence.
On the New Zealand front, there’s speculation that the Reserve Bank of New Zealand (RBNZ) might continue with a cautious approach or even consider tighter measures to bring inflation back to the 2% target. This backdrop should help mitigate losses for NZD/USD as the market awaits the RBNZ’s inflation expectations report for the second quarter, which is set to be released on Wednesday.
