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NZD/USD rises near 0.5850 as softer US inflation weakens the dollar
The move comes as markets scale back expectations for further Fed rate hikes and shift focus to monetary policy divergence with the Reserve Bank of New Zealand.
NZD/USD climbed on Monday, trading around 0.5850, up 0.14% on the day, as the US Dollar weakened after the latest US inflation data. FXStreet said the softer inflation backdrop has led investors to reduce expectations for additional Federal Reserve interest rate hikes, weighing on the Greenback and lifting the Kiwi.
The New Zealand Dollar also found support from policy divergence. FXStreet noted the Reserve Bank of New Zealand raised its Official Cash Rate earlier this month and signaled further tightening may be warranted if inflationary pressures persist, with banks including BBH and HSBC pointing to an elevated inflation environment and an improving domestic outlook as reasons additional hikes could follow.
In the US, FXStreet reported that last week’s data showed slower Consumer Price Index and Producer Price Index inflation, reinforcing expectations that the Fed will keep rates unchanged at its next policy meeting. While markets now see a rate hold as the most likely outcome, FXStreet also said some Fed officials continued to urge caution on inflation risks.
FXStreet added that geopolitical developments in the Middle East have capped gains for risk-sensitive currencies, with reports of de-escalation efforts involving Iran and a naval blockade announced by Yemen’s Houthis against Saudi Arabia. Even so, the outlet said the persistent weakness in the US Dollar remained the main driver of NZD/USD’s advance, while China’s central bank left benchmark lending rates unchanged for a 14th consecutive month with little impact on the Kiwi.