Dollar firm with eyes on PCE data, kiwi calm before RBNZ decision

© Reuters. FILE PHOTO: U.S. dollar banknotes are seen in this illustration taken March 10, 2023. REUTERS/Dado Ruvic/Illustration/File Photo

By Brigid Riley

TOKYO (Reuters) – The U.S. dollar held steady as traders brushed off durable goods data overnight and awaited the Federal Reserve’s preferred measure of inflation due Thursday for clues on when the U.S. central bank may start cutting interest rates.

The Reserve Bank of New Zealand’s (RBNZ) interest rate decision later in the Asian morning also has market participants on edge, with the New Zealand dollar calm ahead of what could turn out to be a significant policy meeting.

In the U.S., the Commerce Department’s Census Bureau said orders for durable goods fell 6.1% last month, exceeding the 4.5% decline forecast by economists polled by Reuters.

The data did not seem to faze the market, with all eyes on the U.S. core personal consumption expenditures (PCE) price index due on Thursday. Forecasts are for a rise of 0.4%.

“FX markets appear to be taking a nap in the run up to the core PCE print later in the week,” said Charu Chanana, head of currency strategy at Saxo.

Markets have largely priced out a rate cut at both the Fed’s March and May meeting, CME’s FedWatch Tool showed, following strong U.S. consumer and producer price data. The chance of a cut in June sits around 51%.

The U.S. dollar index, which measures the currency against a basket of peers, hovered around 103.82.

With market expectations more closely aligned with the Fed’s latest projections and comments, traders would only respond if they see a trend break in tier one data, “particularly hinting at growth weakness,” said Chanana.

“Meanwhile, the focus will be outside the U.S., particularly RBNZ meeting today or Eurozone inflation on Friday, to revive some level of volatility in the FX markets.”

The euro consolidated as Europe awaited its own slew of inflation reports, with German states, France and Spain scheduled to release inflation data on Thursday ahead of the euro area’s figures due on Friday.

The euro was mostly unchanged versus the greenback at $1.0844. It has been rising since mid-February, when it hit its lowest since Nov. 14.

Elsewhere, the kiwi held firm at $0.6171, as traders braced for the RBNZ’s decision.

Markets are pricing in a one-in-three chance the RBNZ will raise its 5.5% official cash rate to combat stubborn inflation, and all but one of the 28 economists polled by Reuters expect the RBNZ to keep its cash rate at a 15-year high of 5.50%.

The Australian dollar was mostly unchanged at $0.65455 ahead of monthly consumer price data due at 0030 GMT. Annual inflation is expected to accelerate to 3.6% from 3.4%.

The yen, meanwhile, was holding around 150.52 per dollar after strengthening as much as 150.08 against the greenback overnight.

Inflation data on Tuesday showed Japan’s core consumer inflation exceeded forecasts and kept alive some expectations that the Bank of Japan might end negative interest rates by April.

In cryptocurrencies, bitcoin was last up 0.54% at $57,035.76 as it continued to surge after jumping to a more than two-year high above $57,000 on Tuesday.