US FX WRAP: Dollar traded flat ahead of Thursday PCE; NZD outperforms on hawkish RBNZ hold

USD: FX markets have generally been quiet on Wednesday. Despite a heavy day of newsflow, particularly regarding geopolitics, the Dollar Index is around flat heading into the APAC session. The stock impulse hasn’t provided any new impetus for the USD, with traders booking profits on equity gains after indices notched fresh record highs. Ahead, US PCE inflation data is due Thursday, with many expecting a multi-year hot reading, which will likely keep FOMC policymakers cautious on the prospects regarding any loosening of policy, as price pressures continue to move away from the central bank’s target. Separately, a Reuters poll shows investors expect the Greenback could break higher ahead as the Fed focusses on inflation, supported by higher Treasury yields, oil-driven inflation, and a resilient US economy.

EUR: Similar to the USD, action was limited, with the single-currency trading around flat. ECB officials continue to strike a cautious tone: VP de Guindos noted inflation expectations remain well-anchored, while Pereira warned Middle East conflict could materially affect prices and wages (a factor policymakers will discuss at the next policy meeting); Makhlouf acknowledged second-round effects cannot be ruled out, adding any Iran peace deal would influence rate decisions.

AUD: The Aussie was one of the currencies that saw some decent action, albeit the bulk of it was concentrated overnight; the currency heads into APAC trade on the back foot. Australia’s April CPI rose +0.4% M/M and 4.2% Y/Y, below expectations, with weakness in volatile and policy-affected areas such as transport; seasonally adjusted CPI fell 0.1% M/M; trimmed mean inflation was firmer at 0.3% M/M and 3.4% Y/Y. Analysts at Westpac said that the Q2 pressures are expected to peak in Q3.

NZD: The Kiwi was one of the bright spots in a very dull session, trading with gains of around 1%. Overnight, the RBNZ held its OCR at 2.25% in a 3-3 split vote, which required Governor Breman’s to cast the tiebreaking vote. The vote split lifted rate-hike bets as forecasts showed the OCR near 3% by year-end, with inflation projected to hit 4.2% in Q2 and peak at 4.3% in Q3. Analysts at ANZ said they continue to see three rate hikes in 2026 (Jul/Sep/Oct); “We have open minds on whether the OCR will need to go north of 3%, but there’s a lot of water to flow under that bridge,” adding that “the data will decide that in the fullness of time, not the RBNZ’s forecasts here and now.”