NZD/USD held steady near 0.5900 during the European session on Wednesday, struggling to recover from the previous day’s losses. A rebound in the US dollar (USD) is providing support for the potential to weaken the NZD/USD pair.
The U.S. Dollar Index (DXY), which measures the greenback’s performance against a basket of six other major currencies, erased recent losses. Spot prices are trading higher around 104.70. The upward trend can be attributed to improvements in U.S. Treasury yields and market caution ahead of the release of U.S. inflation data.
The U.S. Consumer Price Index (CPI) is expected to rise 0.5% monthly, up from 0.2% in the previous month. Excluding volatile food and energy prices, the core Consumer Price Index (CPI) is expected to be steady at 0.2%. Economic data and market sentiment can play a significant role in shaping the performance of the U.S. dollar (USD).
These inflation data can provide more accurate insight into inflation trends in the U.S. economy and have a significant impact on market sentiment and trading decisions. It is likely to enhance the relative strength of the US dollar against the New Zealand dollar (NZD) and affect the trading dynamics of the NZD currency pair.
Rising inflation, especially higher than expected, could indeed reinforce the general hawkish sentiment surrounding the Fed. This could lead to expectations for more aggressive monetary policy action.
The market expects the Federal Reserve to continue to tighten monetary policy and raise interest rates by another 25 basis points before the end of 2023. Additionally, dollar bulls are enthusiastic about the prospect of interest rates remaining elevated for an extended period.
This expectation reflects the possibility that the Fed will adopt a more hawkish monetary stance towards the end of the year, which could help the dollar strengthen and shape market sentiment.
