Dollar firm on Powell caution, kiwi bides time before rates decision


By Kevin Buckland

TOKYO (Reuters) – The dollar was on the front foot on Wednesday having rebounded from a three-week low after Federal Reserve Chair Jerome Powell struck a cautious tone on how soon interest rate cuts would come.

The New Zealand dollar edged higher ahead of the central bank’s rate decision, with traders on alert for any signals on the timing for policy easing.

In the first day of his testimony to Congress overnight, Powell said a rate cut is not appropriate until the Fed gains “greater confidence” inflation is headed toward the 2% inflation target.

However, he noted the cooling job market, saying “we now face two-sided risks” and can no longer focus solely on inflation.

The dollar index, which measures the U.S. currency against six major peers including the euro and yen, was flat at 105.11 early in the Asian day, after rising about 0.1% on Tuesday. On Monday, it had dipped to the lowest since June 13 following unexpectedly soft payrolls figures.

Traders lay about 73% odds for a rate cut by September, slipping from 76% a day earlier. A second reduction is mostly priced in by December.

“Powell was careful not to pre-commit to a path they could still readily be knocked away from by the data flow,” said Taylor Nugent, senior markets economist at National Australia Bank.

“Even as markets look to September as the likely kick off date, it is difficult for pricing to firm much further with three CPI prints and two payrolls to get through which could readily delay things.”

Following his testimony to the Senate, Powell speaks before the House later Wednesday. CPI data for June is due on Thursday.

The dollar rose 0.07% to 161.41 yen.

The euro was flat at $1.0815.

Australia’s dollar was little changed at $0.6739, staying close to Monday’s six-month peak of $0.67615.

New Zealand’s kiwi added 0.1% to $0.6131, but staying mostly flat this week after pulling back sharply from Monday’s three-week high of $0.6171.

The Reserve Bank of New Zealand is widely expected to keep rates steady when it announces its policy decision at 0200 GMT, as it takes its time in judging whether inflation has come under control. At its last meeting, it even flagged the risk of another rate hike.

“The RBNZ could note the risk of inflation easing faster than anticipated,” said Kristina Clifton, a senior economist at Commonwealth Bank of Australia.

“If they do, financial markets could fully price the first RBNZ rate cut in October, from November at present,” spurring a retreat in the kiwi to NZ$1.1031 per Aussie dollar, she added.

The Aussie last traded at NZ$1.0996.

(Reporting by Kevin Buckland. Editing by Sam Holmes)



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