Dollar firms on Powell caution; kiwi eases after dovish cenbank
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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 U.S. interest rate cuts would come.
The New Zealand dollar weakened after the central bank expressed confidence that inflation would return to its target band this year, spurring bets for early 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" that inflation is headed toward the 2% target.
He, however, noted the cooling job market. "We now face two-sided risks" and can no longer focus solely on inflation, he said.
The dollar index, which measures the U.S. currency against six major peers including the euro and yen, was flat at 105.14, after rising about 0.1% on Tuesday. It had dipped on Monday to the lowest level since June 13 following unexpectedly soft U.S. payrolls data.
Traders currently set 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 is scheduled to speak before the House later in the day. CPI data for June is due on Thursday.
The dollar rose 0.13% to 161.525 yen.
The euro was flat at $1.0815.
New Zealand's kiwi dropped 0.55% to $0.60915, pulling further away from Monday's three-week high of $0.6171.
The Aussie dollar surged 0.5% against its neighbour to hit NZ$1.1065 for the first time since February 2023.
The Reserve Bank of New Zealand held rates steady, as widely expected, but expressed confidence that inflation would return to target during the second half of this year. At the previous meeting in May, policy makers had flagged the potential for an additional rate hike.
"It was less hawkish, or more dovish, than May," said Imre Speizer, a strategist at Westpac.
"They're warming up to be looking at rate cuts, essentially."
Australia's dollar eased 0.1% to $0.67345, but was still hovering close to Monday's six-month peak of $0.67615.
