NZD/USD moves higher to near 0.6100 as investors await PPI data

• NZD/USD climbs to near 0.6095 in the first Asian session on Friday.
• US CPI inflation was higher than expected in September, while jobless claims rose unexpectedly.
• The RBNZ’s dovish stance could limit the pair’s upside.

The NZD/USD pair holds positive ground around 0.6095 during the early Asian session on Friday. However, the pair’s upside could be limited as firmer September US inflation lowers the chances of aggressive US Federal Reserve (Fed) cuts, lifting the greenback. Investors await the producer price index (PPI) and preliminary Michigan consumer sentiment data due later on Friday.

US inflation surprised on the upside in September, with the consumer price index (CPI) rising 2.4% year-on-year in September, compared with 2.5% the previous month. Meanwhile, the core CPI, the increase in prices ex-food and energy, rose 3.3% from 3.2% previously, more than the expected 3.2%. The higher-than-expected inflation ratio could boost the greenback and limit upside for NZD/USD.

The small upside surprise in September’s price increase is unlikely to prevent the Fed from cutting interest rates further this year, but the odds of a 50 basis point (bps) cut fell significantly after the strong US report in September week past. Markets are now pricing in a nearly 83.3% chance of a 25 basis point (bps) Fed rate cut in November, according to CME’s FedWatch tool.

New York Fed President John Williams said Thursday he expects more rate cuts as inflationary pressures continue to moderate and the economy remains solid. Meanwhile, Chicago Fed President Austan Goolsbee noted that he sees a series of rate cuts over the next year to a year and a half, noting that with inflation now approaching the Fed’s 2 percent target, the economy is close to catching up labor, and the Fed’s objective is to freeze those existing conditions.

However, Atlanta Fed President Raphael Bostic is open to skipping a rate cut in November if economic data still hasn’t aligned with the Fed’s target numbers in time.

On the Kiwi front, the accommodative stance of the Reserve Bank of New Zealand (RBNZ) could limit the pair’s short-term upside. Markets bet on more aggressive easing in November. Swaps imply that another 45 basis points of easing will follow at the RBNZ meeting in November. However, the positive development around the Chinese economy could lift the New Zealand dollar (NZD) for China, as China is an important trading partner for New Zealand.