New Zealand Dollar inches higher as US Dollar declines on easing bond yields

The New Zealand Dollar (NZD) has inched higher as the US Dollar (USD) declines, primarily due to easing bond yields in the US. This comes after a volatile session, with the NZD/USD pair trading around 0.5660 during European hours on Friday. The US Dollar's struggles are attributed to market caution surrounding the Federal Reserve's monetary policy outlook, which is perceived as hawkish due to expectations of further rate hikes.

Recent strong US economic data has heightened inflation concerns, fueling the likelihood of a rate hike in the upcoming Federal Reserve meetings. The probability of an October benchmark rate hike has risen to nearly 71%, up significantly from 57.6% last week and 9.7% a month ago. Meanwhile, the New Zealand Dollar may face challenges as its 10-year government bond yield eases after surging to 5.153% on Thursday, its highest level since November 2023.

This yield spike was driven by a global bond selloff caused by elevated oil prices and heightened inflation fears. The Reserve Bank of New Zealand (RBNZ) Governor Anna Breman has cautioned that persistent high oil prices could lead to further inflation. Investors are now watching upcoming China PMI data, New Zealand's primary trading partner, as well as the US PCE Index and labor market report for insights into the Federal Reserve's next policy moves.

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