US Dollar holds firm ahead of PPI data as New Zealand weakens

• Strong US CPI figures push the odds of a December Fed rate rise to 87%, weighing on NZD/USD.
• With annual headline price growth forecast at 6.6%, Friday’s US PPI release is in focus as traders seek further signals on inflation.
• An 11-year high of 5.7% in New Zealand’s unemployment rate has curbed expectations of aggressive RBNZ rate increases.

Persistent inflation concerns and expectations of tighter monetary policy are keeping the US Dollar (USD) steady, leaving NZD/USD under pressure. Trading near 0.5540 in Friday’s Asian session, the pair is extending its decline into a fourth consecutive day.

December rate-rise expectations for the Federal Reserve have strengthened following this week’s above-forecast US Consumer Price Index (CPI) figures. Adding weight to those expectations, Fed Governor Christopher Waller said a 50-basis-point increase should be considered if core inflation remains elevated.

Pricing tracked by the CME FedWatch tool now puts the probability of a 25-basis-point rise at nearly 87% for the central bank’s 8–9 December meeting. A half-point increase carries a 13.13% probability.

October’s headline US Producer Price Index (PPI) is forecast to rise 6.6% year-on-year, while the core measure is expected to increase 5.0%. Traders will look to Friday’s release for a clearer indication of the Fed’s interest-rate path.

A rise in New Zealand’s unemployment rate to 5.7%, its highest level in 11 years, has weighed on the kiwi dollar. The weak labour market figures have reduced expectations of aggressive interest-rate increases by the RBNZ.

NZD finds support as New Zealand election result favours RBNZ’s single mandate

New Zealand’s ruling centre-right coalition “holds a one-seat majority following Sunday’s election, with final results due November 27.” That is the assessment of analysts at Brown Brothers Harriman, who point to contrasting monetary policy proposals from the parties. The incumbent coalition, led by the National Party, “wants to stick to the RBNZ’s sole price stability mandate, which has been in place since December 2023,” whereas the Labour Party “ran on a proposal to return to a dual inflation-employment mandate.” In BBH’s view, this policy difference is supporting NZD, with the existing framework seen as reducing the risk of a more dovish central bank stance.