Friday 12th July 2019
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The New Zealand dollar held its gains on expectations stronger-than-expected US inflation data won't prevent a rate cut there later this month.
The kiwi was trading at 66.66 US cents at 8am in Wellington from 66.67 US cents at 5pm. The trade-weighted index was at 72.91 from 72.85.
The US consumer price index - excluding the volatile food and energy components - rose 0.3 percent in June, versus an expected 0.2 percent. Annual core inflation was 2.1 percent.
While the data pointed to some signs of a pick-up in underlying inflation it is "unlikely to have changed Fed officials’ minds” regarding pending rate cuts, said Capital Economics.
It noted that the minutes of the June meeting released this week showed "many" Fed officials had seen a stronger case for looser monetary policy in the near term. This reinforced Federal Reserve chair Jerome Powell's testimony this week that seemed to point to a July rate cut.
Kiwibank trader Mike Shirley also noted that the Federal Reserve focuses on core personal consumption expenditures - or PCE - for monetary policy. The core PCE price index increased 1.6 percent year-on-year in May and has undershot its target this year.
Expectations that the Federal Reserve would cut rates by at least 25 basis points at the end of the month were solidified when Powell reiterated his previous day's comments in testimony before the Senate Banking Committee overnight.
“Despite US inflation rising by more than expected in June, markets remain firm on their expectation of a 25bp cut at the July FOMC meeting after Fed chair Powell maintained his easing bias overnight,” said ANZ Bank FX/rates strategist Sandeep Parekh.
According to the CME Group's FedWatch Tool, there is now a 20.4 percent chance of a 50 basis-point rate cut and a 79.6 percent chance of a 25 point cut. Yesterday, there was a 31 percent chance of a steeper cut.
Kiwibank's Shirley noted that the European Central Bank also showed a dovish easing bias in minutes from its latest meeting. Members were “fully on board for the idea of additional monetary policy stimulus.”
The kiwi dollar traded at 59.22 euro cents from 59.12 late yesterday.
It was at 95.53 Australian cents from 95.54, at 53.19 British pence from 53.18, 72.27 yen from 71.95, and at 4.5777 Chinese yuan from 4.5763.
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