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11/09/24
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NZD/USD Rebounds Ahead of Key US CPI Data Amid Shifting Treasury Yields
The NZD/USD exchange rate has rebounded somewhat during the Asian session on Wednesday, trading around 0.6150. This small recovery comes ahead of the important release of US Consumer Price Index (CPI) data, which is expected to influence market sentiment. The decline in US Treasury yields has exerted pressure on the US Dollar, contributing to the dynamics of the currency pair.
As the anticipation builds for the upcoming CPI report, which could provide insights into the Federal Reserve’s stance on interest rates, the US Dollar Index (DXY) has halted a three-day upward trend. The DXY is currently hovering around 101.40, with the yields on 2-year and 10-year US Treasury bonds noted at 3.57% and 3.62%, respectively.
Recent labor market data from the US has injected uncertainty into expectations surrounding an aggressive interest rate cut by the Federal Reserve in its upcoming September meeting. Market indicators suggest that traders are nearly certain of at least a 25 basis point cut. However, the chances of a more substantial 50 basis point cut have dwindled, now standing at approximately 31%, down from 38% just a week prior.
Meanwhile, insights from Morgan Stanley shed light on the ongoing economic situation in China, where deflation persists. This circumstance aligns with historical precedents observed in Japan, highlighting that extended periods of deflation necessitate substantial stimulus measures to mitigate potential debt-deflation issues. Any shifts in China’s economic landscape could significantly influence the New Zealand Dollar due to the close trading relationship between the two nations.
Analysts from UOB Group have noted potential downside risks for the New Zealand Dollar, suggesting it may fall below the 0.6115 level, although they believe the support level at 0.6085 is unlikely to be breached. They also indicated that as long as the NZD trades below 0.6220, a dip below 0.6150 remains plausible.
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