The NZD/USD pair is trading stronger, reaching around 0.5680 during the early Asian session on Friday. The US Dollar (USD) is under pressure as US yields continue to decline across the curve, despite persistent concerns about the global trade environment. All eyes are now on the release of US Retail Sales data later on Friday, which could provide fresh direction for the currency markets.
US Economic Data and Fed Outlook
The US Producer Price Index (PPI) showed an uptick in January, reinforcing expectations that the US Federal Reserve (Fed) is unlikely to cut interest rates before the second half of the year. As a result, financial markets have shifted their rate cut expectations to September, from an earlier outlook of June. While some economists argue that the Fed may have already closed the window for further rate cuts due to strong domestic demand and a resilient labor market, the market sentiment remains sensitive to any potential shifts in the Fed’s stance.
RBNZ Rate Cut Expectations Weigh on NZD
Meanwhile, New Zealand’s central bank, the Reserve Bank of New Zealand (RBNZ), is expected to announce a 50 basis point rate cut next week, lowering the Official Cash Rate (OCR) to 3.75%. The latest Q1 RBNZ survey of inflation expectations shows that firms’ inflation outlooks for the next 2, 5, and 10 years have all dipped closer to 2%, suggesting the RBNZ has room to further ease monetary policy. Markets are also pricing in an additional 75 basis points of cuts for the remainder of the year, which could exert downward pressure on the New Zealand Dollar against the US Dollar.
The dovish expectations surrounding the RBNZ may cap further gains for the Kiwi, potentially making it more vulnerable to any USD strength as market participants await fresh data and further guidance from the central bank.
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