The New Zealand dollar continued to tick higher after dovish comments by US Federal Reserve chair Jerome Powell increased the prospects of deeper rate cuts there at the end of the month. Additionally, European investors are keeping on the European Central Bank's monetary policy.
"As Powell also stated last month, 'Committee participants expressed concerns about the pace of inflation's return to 2%,'" Deutsche Bank economist Brett Ryan wrote in a note.
In his first day of testimony before Congress on Wednesday, Powell confirmed that the United States economy was still under threat from disappointing factory activity, tame inflation and a simmering trade war. "Inflation pressures remain muted", he said.
Focus has turned to the release of the ECB's June minutes and whether the bank has started discussions about a return to asset purchases.
It all came down to the Federal Reserve and interest rates once again.
In contrast, hedge funds had rapidly unwound large long positions in the dollar, especially against a basket of major and emerging-market currencies, anticipating USA rate cuts. While Wall Street has anticipated a half-percent cut in the federal funds rate, it now appears more likely that the Fed will opt for a quarter percent cut in light of the stronger-than-expected June jobs report.
Powell responded by saying "we'll be looking at a full range of data", without offering any other clues.
"It's unlikely the Fed will be swayed from lowering interest rates as an insurance policy against future economic weakness", said Matthew Eidinger, FX trader at Cambridge Global Payments in Montreal.
He said Fed officials were mindful of headwinds in global growth and trade as early as the May FOMC meeting, when "these crosscurrents have re-emerged, creating greater uncertainty".
In response to questions at the Senate hearing, Powell said that very low unemployment rates no longer necessarily push up inflation.
Oil bulls will be encouraged by the transpiring tailwinds, including rising geopolitical tensions, a potential U.S. interest rate cut, and rising summertime demand, while the OPEC+ supply cuts extension effectively places a sturdier floor under Oil prices.
'There is a risk that weak inflation will be even more persistent than we now anticipate, ' said Powell.
At the same time, price measures watched closely by the Fed continue to run well below its 2 percent target, while wage gains so far are barely enough to cover inflation, he said, rejecting the claim the U.S. is experiencing a "hot" jobs market.
Powell's testimony recognized a strong labor market.
The S&P 500 Index climbed 0.2% as of 11:23 a.m.
A fall in biotech and pharmaceutical shares pulled down the Nasdaq, however, as the administration of U.S. President Donald Trump withdrew a rule that would have required health insurers to pass on rebates from drugmakers.