NZD/USD drops below 0.6550 in a risk averse market

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  • The NZD lost 0.53% during the New York session.
  • The US Core PCE closed down 5% as Fed tightening conditions boosted market sentiment.
  • Tensions in Eastern Europe ease as Russia begins negotiations with the United States.

As the North American session begins, NZD/USD slips for the seventh day in a row, unable to recover from losses since January 20. At the time of writing, it is trading at 0.6552. Risk aversion in the markets keeps safe-haven peers in the bid, while risk-sensitive currencies like NZD, AUD and GBP fall.

US Core PCE inflation rises

The U.S. Bureau of Economic Analysis reported on Friday that core personal consumption expenditure (PCE) for December, the Fed’s preferred gauge of inflation, rose 4.9%, up 0.1% than expected, and left behind the 4.7% reported in November.

Worries over US central bank tightening weigh on market sentiment

In the meantime, market participants continue to digest the expected change in Fed monetary policy. Although the monetary policy statement was seen as a “hawkish grip”, the initial reaction came as no surprise. Nonetheless, Fed Chairman Powell’s press conference rocked the boat, stating that “the committee is of the view to raise the fed funds rate at the March meeting.”

Before Wall Street opened, Minnesota Fed President Neil Kashkari touched the wires. He said the Fed needed to balance the US economy by raising interest rates. Kashkari noted that the central bank is unsure how many increases will take and stressed that the Fed will adjust as more data comes in.

Tensions in Eastern Europe ease

During the European session, he crossed threads that Russia is ready to engage with US security proposals and stressed that it does not want war with Ukraine, giving investors mild relief.

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