Dollar Steady as Fed Urges Patience; Kiwi jumps on hawkish RBNZ outlook

While the RBNZ left its benchmark cash rate at 5.5% as expected, the central bank said there was some concern that the inflation rate had fallen more slowly than expected.

The bank now forecasts its official cash rate at 5.54% in June 2025, up from 5.33% previously.

“Rather than the dovish tilt the market was expecting, the RBNZ’s updated OCR tracking shows it expects to keep rates high for longer,” IG market analyst Tony Sycamore wrote in a note.

In response, the New Zealand dollar rose to $0.6152, its highest level since March 14. It was last up 0.89% against the dollar at $0.614.

The Australian dollar rose 0.18% to $0.668.

With little else to drive the market in terms of economic data this week, major currencies continued to move in a tight range.

Investors have been shoring up their bets on rate cuts after a softer inflation reading last week boosted expectations of U.S. rate cuts this year.

After a series of Fed officials struck a cautious note, markets were pricing in about 43 basis points (bps) of easing versus last week’s high of 52 bps. FEDWATCH

Federal Reserve Governor Christopher Waller said overnight that he would need to see several more months of good inflation data before he would feel comfortable supporting an easing of monetary policy.

Cleveland Fed President Loretta Mester echoed that timeline.

Still, Waller’s comments gave the market little to go on, said Kyle Rodda, senior financial markets analyst at Capital.com.

“He basically told us that if inflation goes down, the Fed will cut… One implies the other and doesn’t say anything about whether inflation and rates will go down.”

While markets remain hopeful that US inflation will continue to slow, PCE data due on May 31 will be a crucial test to confirm those expectations, he added.

The dollar index fell 0.06% to 104.57 against a basket of currencies, after briefly rising as high as 104.76 overnight.

Ahead of next week’s data, the market will receive minutes from the Fed’s April 30-May 1 policy meeting, which investors will examine for further clarity on the central bank’s thinking.

Federal Reserve Chairman Jerome Powell, in his press conference after the Fed held rates steady at that meeting, ruled out rate hikes.

The euro rose 0.04% to $1.0858, focusing on Thursday’s data from the European Central Bank’s negotiated wage tracker and the euro zone Purchasing Managers’ Index.

Sterling was last trading at $1.2718, up 0.09% on the day and not far off a two-month high hit on Tuesday as the market awaited a key UK inflation report that It will be posted later that day.

Economists polled by Reuters say the data will likely show headline inflation slowed sharply to 2.1% in April, although the Bank of England (BOE) believes it will accelerate again to around 2.6% later this year. anus.

Markets are pricing in 53 basis points of BOE cuts this year.

Against the yen, the dollar was almost flat at 156.25, as traders took a breather after testing the currency pair.

Fears of monetary intervention by Tokyo were still keeping traders on alert after alleged rounds of intervention earlier this month.

The yen was unchanged after data showed Japan’s exports rose 8.3% in April from a year earlier.

In cryptocurrencies, bitcoin was last up 0.86% to $70,314.00.

Ether was last up 1.24% at $3,792.00, not far from its highest level since mid-March.

Cryptocurrencies surged earlier this week on speculation over the outcome of US spot exchange-traded fund filings that would track the world’s second-largest cryptocurrency.