Kiwi rises, dollar struggles to stay afloat ahead of US inflation test By Reuters

By Rae Wee

SINGAPORE (Reuters) – The New Zealand dollar rose sharply on Thursday on the back of an upbeat survey on business prospects, while the U.S. dollar failed to maintain its recovery ahead of a key U.S. inflation reading at the end of the week.

Friday’s release of the core personal consumption expenditures (PCE) index, the Federal Reserve’s preferred inflation measure, caps a week that has seen little other significant market-moving data, leaving currencies largely range-bound.

Still, the was a notable outperformer in the Asian session, hitting an eight-month high of $0.6295 after a survey on Thursday showed New Zealand business confidence jumped to a decade-high in August. It was last up 0.73% at $0.6291.

“Business confidence has increased strongly after the Reserve Bank reviewed monetary policy,” said Michael Gordon, chief economist at Westpac in New Zealand.

The Reserve Bank of New Zealand earlier this month made its first interest rate cut in more than four years and signalled more would follow.

“We wouldn’t suggest that a single OCR (official cash rate) cut would make this much difference to the economic outlook. Rather, we think it shows how gloomy businesses had become earlier in the year,” Gordon said.

On the broader market, the dollar struggled to find a bottom after rising 0.48% in the previous session, with analysts attributing part of the gain to month-end demand.

The euro inched back toward a 13-month high, last trading at $1.1135. The pound rose 0.14% to $1.3209, not far from Tuesday’s peak of $1.3269, its highest level since March 2022.

The Australian dollar hovered around an eight-month high, rising 0.27% to $0.6803.

“PCE is definitely the most important print this week in the US, but I doubt it will materially change market expectations for FOMC policy unless there is a significant miss,” said Carol Kong, currency strategist at Commonwealth Bank of Australia (OTC:).

According to the CME FedWatch tool, markets have already priced in a 25 basis point rate cut by the Fed next month, with a 34.5% chance of an outsized 50 basis point cut.

Investor expectations about impending U.S. rate cuts were further heightened by Fed Chairman Jerome Powell’s comments in Jackson Hole last week, when he said the “time has come” to cut rates. Powell joined a group of other Fed policymakers who have recently indicated the same.

The prospect of lower U.S. interest rates next month has sent the dollar tumbling. The dollar has benefited over the past two years from the Fed’s aggressive tightening cycle and expectations about how much interest rates could rise.

Since then, the dollar has fallen about 2.9% in the past month, putting it on track for its biggest monthly decline in nine months.

The price was last down 0.07% at 100.94, after falling to a 13-month low of 100.51 on Tuesday.

The yen was virtually unchanged at 144.67 per dollar, with expectations of a 3.7% gain for the month.

In contrast to the Fed’s looming easing cycle, policymakers at the Bank of Japan (BOJ) have signaled that the central bank will continue to raise interest rates if inflation remains stable. This would provide some relief for the Japanese currency, which has been under enormous pressure from wide interest rate differentials.

“With the Fed moving closer to cutting rates and the BOJ normalizing the still negative real policy rate, rates should move closer to fair value around 135,” strategists at Lombard Odier said in a note.