By Kevin Buckland
TOKYO (Reuters) – The dollar was higher on Wednesday after recovering from a three-week low after Federal Reserve Chairman Jerome Powell struck a cautious tone about when interest rate cuts would occur.
The New Zealand dollar rose ahead of the central bank’s rate decision, with traders on alert for any signs about the timing of policy easing.
On the first day of his overnight congressional testimony, Powell said a rate cut is not appropriate until the Fed gains “greater confidence” that inflation is headed toward the 2% inflation target.
However, he noted the cooling job market, saying “we now face bilateral risks” and can no longer focus solely on inflation.
The dollar index, which measures the U.S. currency against six major pairs 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 fell to its lowest level since June 13 after unexpectedly weak payrolls numbers.
Traders put odds of about 73% on a rate cut by September, down from 76% the day before. A second reduction will be priced mainly in December.
“Powell was careful not to pre-commit to a path that could still be easily derailed by the flow of data,” said Taylor Nugent, senior markets economist at National Australia Bank.
“Even if markets view September as the likely release date, it is unlikely that prices will firm up much further with three CPI prints and two payrolls to process, which could easily delay things.”
Following his Senate testimony, Powell speaks before the House on Wednesday. June CPI data will be released on Thursday.
The dollar rose 0.07% to 161.41 yen.
The euro was stable at US$1.0815.
The Australian dollar was little changed at $0.6739, remaining close to Monday’s six-month peak of $0.67615.
The New Zealand kiwi rose 0.1% to $0.6131 but was broadly flat this week after pulling back sharply from Monday’s three-week high of $0.6171.
The New Zealand Reserve Bank is expected to hold rates steady when it announces its policy decision at 0200 GMT, as it takes time to assess whether inflation has come under control. At its last meeting, it even signaled the risk of another rate increase.
“The RBNZ may note the risk of inflation easing more quickly than anticipated,” said Kristina Clifton, senior economist at the Commonwealth Bank of Australia.
“If they do so, financial markets could fully price in the first RBNZ rate cut in October from November currently,” spurring a kiwi pullback to NZ$1.1031 per Australian dollar, she added.
The Australian last traded at NZ$1.0996.
(Reporting by Kevin Buckland. Editing by Sam Holmes)
