NZD/USD improves to near 0.6090 as RBNZ Orr underscores necessity of restrictive policy

■  NZD/USD snaps its losing streak on hawkish remarks from RBNZ Governor Adrian Orr.

■  Governor Orr noted that while inflation remains elevated, it is trending downward.

■  Market expectations for the Fed’s first-rate cut have been pushed back due to recent US data.

NZD/USD broke its four-day losing streak following comments from Reserve Bank of New Zealand (RBNZ) Governor Adrian Orr on Friday. Orr stated that the central bank anticipates commencing policy normalization in 2025. As a result, the pair climb higher, reaching near 0.6090 during the Asian session.

Governor Orr mentioned that the economy is progressing as expected, with inflation expectations decreasing. While inflation remains elevated, it is on a downward trend. Orr emphasized the need for monetary policy to remain restrictive for some time. He also expressed expectations for economic growth to pick up in 2024.

The US Dollar Index (DXY) is slightly lower, hovering near 104.10, despite the improved US Treasury bond yields, which stand at 4.63% for the 2-year and 4.25% for the 10-year bonds at the time of publication. However, market expectations for the Federal Reserve's first-rate cut have been pushed back due to recent Gross Domestic Product (GDP) data from the United States (US), providing support for the US Dollar (USD).

The Greenback gained ground following the release of the Federal Reserve's preferred inflation gauge, the US Personal Consumption Expenditures - Price Index, which met expectations. Investors are now focusing on the final US S&P Global Manufacturing PMI for February, scheduled for release on Friday.

The US Personal Consumption Expenditure (PCE) Price Index expanded by 2.4% year-over-year (YoY) in January, down from the previous reading of 2.6%, aligning with market expectations. On a month-over-month basis, the index increased by 0.3%, compared to a 0.1% increase in the prior period.

Meanwhile, the US Core PCE, the Federal Reserve's preferred inflation measure, grew by 2.8% YoY, slightly lower than December's 2.9%, in line with consensus estimates. On a monthly basis, the core PCE rose by 0.4%, surpassing the previous 0.1% increase.