The New Zealand dollar has weakened against the US dollar ahead of Friday’s crucial domestic data release.
Despite Powell’s dovishness, US dollar bulls re-enter the market.
NZD/USD is down 0.66 percent in early Asia at the time of writing, weighed down by a stronger US dollar.
As traders prepare for the New Zealand Consumer Price Index data at the start of the Asian day, the kiwi slid from fresh daily highs of 0.7044 to a low of 0.6964 for the day.
Meanwhile, following Wednesday’s dovish comments that plummeted the greenback, US Federal Reserve Chairman Jerome Powell continued his testimony to Congress on Thursday.
On Thursday, the chairman reiterated that inflation was most likely only temporary. The chairman’s position, however, differed from that of his colleague, St. Louis Fed Chief Bullard.
Bullard claimed that the Fed’s goal of “substantial further progress” on inflation and employment has already been met, and that it is time to decrease support.
Bullard’s comments, combined with the fact that the number of Americans filing new unemployment claims fell to a 16-month low last week, helped the US dollar recover from yesterday’s lows.
Furthermore, as Asia tackles the variations and subsequent lockdowns, rising coronavirus infections kept the US dollar strong in comparison to the likes of the kiwi.
The main event in New Zealand today is the release of the Q2 CPI figures.
Traders will also be watching for the Reserve Bank of New Zealand’s sectoral factor core inflation model results, which will be released later this afternoon in New Zealand.
“We believe prices climbed 3.0% y/y (1.5%) in May, compared to the market expectation of 2.7 percent and the RBNZ prediction of 2.6 percent,” according to ANZ bank analysts.
“This is a critical data point for the RBNZ, as annual inflation will reach 2% for the first time since before COVID.” The contents of the report will be more crucial than the headline number,” the experts added.
“A good showing from non-tradables and core inflation measures would underline our belief that underlying inflation pressures are rising and that higher interest rates are required as soon as possible.”
The balance of risks has shifted toward likely overshooting of the inflation and employment targets, as the RBNZ now recognises.”/n
