The US dollar (USD) has weakened in response to the latest inflation data, yet the New Zealand dollar (NZD) remains under pressure. As of Friday, NZD/USD was trading at approximately 0.5650, which was a slight increase of 0.05% at that moment.
The U.S. Personal Consumption Expenditures (PCE) price index, a key inflation measure favored by the Federal Reserve, saw a year-on-year rise of 4.1% in May, matching what the market had anticipated. Monthly, the index rose by 0.4%, which, while still notable, fell short of the expected 0.5%. This has contributed to a narrative that inflation might have peaked or is nearing its peak.
In light of this news, investors have pulled back from their expectations concerning a potential 25 basis point interest rate increase by the Fed in July. The likelihood of such a hike has dropped to around 29.9%, down from 38.5% the previous week, affecting the dollar’s value.
Yet, the New Zealand dollar hasn’t been able to capitalize on the weaker US dollar. There’s an ongoing expectation that the Reserve Bank of New Zealand (RBNZ) will keep the official cash rate steady during its July meeting, which further caps any potential gains for the Kiwi. ASB Bank has revised its outlook for a July rate increase, while the RBNZ has indicated it anticipates a gradual return to tightening, predicting a peak cash rate of 3.25% by early 2027.
Moreover, while short-term expectations have subsided since the PCE announcement, the market still considers a September rate hike by the Fed to be a genuine possibility. This contrast in monetary policy stances between the two central banks is expected to influence the NZD/USD price trends in the near future.
