NZD/USD Gains Strength Around 0.6170

NZD/USD attracted some bargain hunting during the Asian session on Thursday, interrupting the previous day’s late pullback from just above the 0.6200 mark, a four-month high. NZD/USD is currently trading around 0.6170, posting its sixth consecutive day of gains and appears poised to continue the uptrend established over the past month or so.

The Reserve Bank of New Zealand (RBNZ) was hawkish on Wednesday, continuing to boost NZD/USD. As widely expected, the Reserve Bank of New Zealand kept the cash rate unchanged at 5.5%, warning that rates would need to remain at a restrictive level for a sustained period to combat inflation. In addition, New Zealand Reserve Bank Governor Adrian Orr pointed out at the press conference after the meeting that the risk of inflation is still more inclined to the upside, and the central bank has indeed discussed raising interest rates. This, coupled with underlying bearish sentiment in the US dollar, validates the short-term upside prospects for NZD/USD.

Recent speeches by several Fed officials have provided a clear signal that the central bank may have ended its policy tightening path aimed at slowing demand and lowering inflation. Additionally, markets are currently pricing in a cumulative 100 basis points of interest rate cuts from the Federal Reserve in 2024, with further declines in Treasury yields reinforcing this expectation. In fact, the rate-sensitive two-year Treasury yield has fallen to its lowest level since July. This, coupled with the market’s generally maintained risk appetite, is seen as reducing the role of the safe-haven US dollar, helping to offset the impact of China’s official PMI weakness and continue to boost NZD/USD.

The latest data released by China’s National Bureau of Statistics showed that China’s official manufacturing PMI fell to 49.4 in November from 49.5 in the previous month. Additionally, the non-manufacturing PMI fell to 50.2 in November, compared to expectations of 51.1 and the previous reading of 50.6. However, the data had little impact on the NZD/USD pair, which remains at the mercy of US dollar fluctuations. Therefore, market focus will remain on the US PCE price index to be released later in the North American session. The core PCE price index is the Fed’s preferred indicator for measuring long-term inflation trends and should have an impact on the direction of the U.S. dollar.

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