The Core PCE index is one of two key inflation metrics closely monitored by the Fed. This index is still the biggest market mover that sets up market expectations. The US Bureau of Economic Analysis’s report on September 29 confirmed forecasts for continued growth of core PCE inflation. It is expected to be 2.9% annualized for July, an increase over the 2.8% in June. The Bureau produces this timely monthly data, and it’s tremendously important for investors. It risks hampering their ability to gauge the market’s expectations for the Federal Reserve’s own monetary policy outlook.
Traders are weighing the consequences of this week’s surprisingly good inflation news. They’ll be especially looking to see how it plays out on the NZD/USD currency cross. The duo has found it difficult to push its rebound beyond the 20-day Exponential Moving Average (EMA), sailing below the metric at writing just above the 0.5900 figure. During the European trading session on Friday, the NZD/USD pair maintained its position near 0.5885, reflecting a cautious sentiment among investors ahead of the US inflation data release.
Core PCE Inflation Insights
The Core PCE index is one of the key economic indicators. CPI measures the average change over time in the prices consumers pay across a broad market basket of goods and services. The US Bureau of Economic Analysis releases this data on a monthly basis, providing insights into inflation trends and consumer spending patterns. Economists expect core PCE inflation for July to increase to an annualized 2.9%. This is up from June’s rate of 2.8%.
On a month-to-month basis, core inflation has increased consistently by 0.3%. This uptick in inflation indicates that more monetary policy tightening by the Fed is likely. In any case, this change will inevitably affect market perceptions of how high/low interest rates will be. Cutting through the noise investors are indeed reading the data with great interest. They are recalibrating their playbooks to get ahead of an expected shift in the Fed’s posture.
There can be no doubt as to the importance of this data. The Federal Reserve uses PCE inflation data to route through shifts in the economy and help determine the best course of monetary policy. Should inflation krump up higher than forecast, the Fed will likely move with lightning speed to hike interest rates. This decision will have ripple effects on currency valuations and may significantly drive market behavior.
NZD/USD Performance and Outlook
Against the backdrop of these economic indicators, the NZD/USD currency pair is presently caught in a bearish trend with formidable recovery headwinds. The duo has been having a hard time climbing over the key resistance barrier at the 20-day EMA, located near 0.5900. Despite it holding onto its recent gains above 0.5885 as it moves through the European session, investor sentiment is nervous.
Analysts are watching the NZD/USD very closely. If it breaks the August 2 trough at 0.5800, they caution it may trigger further drops. Potential support levels might be the April 11 low of 0.5730 and a round-number support at 0.5700. Our most recent technical analysis indicates that the 14-day Relative Strength Index (RSI) has settled around 50.00. This means that the currency pair is probably in a short term sideways momentum in its price action.
Investors are understandably antsy about the entire market. They’re looking forward to the most important economic data for their trades such as US PCE inflation number that will affect their trades.
Impact of External Factors
Domestic inflation data isn’t the whole story. Other outside factors play a huge role in how the New Zealand dollar — or Kiwi — performs. China’s private sector PMI data are always important. Given how much New Zealand depends on exports to China, this news is doubly noteworthy. Any fluctuations in China’s economic indicators can have a direct impact on New Zealand’s export-driven economy.
As traders consider these factors, they understand that the broader economic landscape can change the market equation just as quickly. The intricate interconnectivity between today’s global economies means that developments in one region can have an outsized impact on currency valuations in another.