NZD/USD rises to 3-week high as RBNZ holds rates, US CPI eyed

The NZD/USD currency pair held in proximity to a fresh three-week high on Wednesday, after the Reserve Bank of New Zealand left borrowing costs without change at its April policy meeting, while investors awaited the key US CPI inflation report later in the day.

New Zealand’s central bank kept its official cash rate unchanged at 5.5%, in line with market consensus, while extending the rate pause for a sixth consecutive meeting.

RBNZ policy makers considered the current monetary policy stance as appropriate to further restrain inflationary pressures.

Despite that New Zealand’s headline inflation eased to a 2 1/2-year low of 4.7% in the fourth quarter of 2023, it was still well above the target range of 1% to 3%.

The RBNZ Board said the official cash rate would have to remain at a restrictive level for an extended period to allow annual consumer inflation to return to target.

Meanwhile, market focus now sets on the US inflation report, which may provide more clues on the Federal Reserve’s interest rate trajectory.

Annual headline consumer inflation in the United States probably picked up to 3.4% in March, according to market consensus, from 3.2% in February.

Annual core CPI inflation probably eased to 3.7% in March from 3.8% in February – an almost three-year low.

“After upside surprises, there is an understandable caution over a potential weaker print that would quickly see June rate cut expectations increase again,” Derek Halpenny, head of research global markets at MUFG Bank, was quoted as saying by Reuters.

Markets are now pricing in about a 57% chance of a Fed rate cut occurring in June, compared with 49% earlier this week, according to the CME FedWatch tool.

About 65 basis points of rate cuts are now priced in, compared with 75 basis points projected by the Federal Reserve.

Currency Pair Performance

As of 7:04 GMT on Wednesday the NZD/USD currency pair was edging up 0.19% to trade at 0.6071.

Earlier in the session, the Forex pair went up as high as 0.6077. The latter has been the pair’s strongest level since March 21st (0.6107).