NZD/USD near 1-month high ahead of US CPI data as RBNZ holds rates

Key points

The New Zealand Dollar touched a fresh one-month high against its US counterpart on Wednesday, after the Reserve Bank of New Zealand left the official cash rate without change at 5.5% at its July meeting, in line with market expectations.

The RBNZ board said that the current interest rate level was restraining spending and inflation pressures as needed.

Yet, the board said the official cash rate would have to remain at a restrictive level in order to bring inflation back down to RBNZ’s target range of 1% to 3% by the second half of 2024.

Policy makers considered the inflation risks as broadly balanced, with supply constraints continuing to ease.

Meanwhile, employment in the country has remained above its sustainable level, though the latest data prints indicated labor market was easing.

The RBNZ has delivered a total of 525 basis points of interest rate hikes since October 2021.

“The (RBNZ) statement and minutes retained their dovish undertone overall, but they can’t not warn that inflation is still ‘too high’ as they need to contain inflation expectations,” Matt Simpson, senior market analyst at City Index, was quoted as saying by Reuters.

“But with an economy now in recession, it’s a relatively safe bet that we’ve seen the terminal rate. And that means the next theme for investors to obsess over is when the RBNZ will begin cutting rates.”

The US Dollar Index registered a fresh two-month low of 101.34 on Wednesday ahead of the key US CPI inflation report. The greenback extended the losses from the start of the week after Federal Reserve officials indicated that the central bank was approaching the end of its policy tightening cycle.

As of 7:37 GMT on Wednesday NZD/USD was inching up 0.08% to trade at 0.6203. During the early phase of the Asian session the major Forex pair went up as high as 0.6239. The latter has been the pair’s strongest level since June 16th (0.6247).