The New Zealand Dollar (NZD) sustained its upward trajectory against the US Dollar (USD) for the second consecutive session on Monday, reaching near 0.5980 during Asian trading hours. The positive movement of the NZD/USD pair was largely attributed to the dovish remarks made by Federal Reserve (Fed) Chairman Jerome Powell on Friday. Powell’s comments, emphasizing the conformity of the recent Personal Consumption Expenditures Price Index (PCE) data with expectations, affirmed the Fed’s stance on potential interest rate cuts for the year.
Federal Reserve Board Governor Christopher Waller reiterated the absence of urgency in implementing rate cuts, particularly amidst ongoing inflationary pressures. Similarly, San Francisco Fed President Mary C. Daly echoed this sentiment, underscoring the Fed’s readiness to adjust rates based on data while highlighting the current robustness of the US economy and the minimal risk of a downturn.
However, the US Dollar Index (DXY) encountered resistance amid lower US Treasury yields, hovering around 104.50. Notably, the 2-year and 10-year yields on US bond coupons stood at 4.60% and 4.19%, respectively, at the time of writing. Fed officials maintain projections of three rate cuts this year, with market participants anticipating the first cut to materialize at the June meeting.
Conversely, the New Zealand Dollar faced downward pressure amidst speculations surrounding potential policy rate cuts by the Reserve Bank of New Zealand (RBNZ), potentially starting from early next year. RBNZ Governor Adrian Orr indicated progress towards bringing inflation within the target range, suggesting that interest rates have peaked and rate cuts are increasingly likely.
Additionally, the Kiwi Dollar received support from encouraging Chinese Purchasing Managers Index (PMI) figures, indicating the first expansion in Chinese manufacturing activity in six months during March. China’s Caixin Manufacturing PMI surpassed expectations at 51.1, while China’s National Bureau of Statistics (NBS) Manufacturing PMI rose to 50.8 in March from 49.1 in the prior month. Furthermore, the NBS Non-Manufacturing PMI increased to 53.0 in March from 51.4 in February.
Looking ahead, traders may exercise caution ahead of the release of ISM Manufacturing Purchasing Managers Index (PMI) data from the United States later in the North American session. Additionally, on Thursday, Building Permits data will be released by Statistics New Zealand, adding further elements to market sentiment.
