NZD/USD drifts higher to near 0.6100, investors await PPI data

• NZD/USD edges higher to near 0.6095 in Friday’s early Asian session.
• The US CPI inflation was higher than forecast in September, while jobless claims posted an unexpected rise. 
• The dovish stance of the RBNZ might cap the pair’s upside. 

The NZD/USD pair holds positive ground around 0.6095 during the early Asian session on Friday. However, the upside of the pair might be limited as firmer US September inflation lowers the odds of aggressive US Federal Reserve (Fed) cuts, which lift the Greenback. Investors await the Producer Price Index (PPI) and the preliminary Michigan Consumer Sentiment Index data, which are due later on Friday. 

The US inflation surprised on the upside in September, with the Consumer Price Index (CPI) rising 2.4% YoY in September, compared to 2.5% in the previous month. Meanwhile, the core CPI, Ex-food & energy price growth, jumped 3.3% YoY in September versus 3.2% prior, hotter than the 3.2% expected. The higher-than-expected inflation report might boost the Greenback and cap the upside for NZD/USD. 

The small upward surprise in September price growth is unlikely to prevent the Fed from additional interest rate cuts this year, but the odds of a 50 basis points (bps) reduction fell significantly after September's strong US Nonfarm Payrolls report last week. The markets are now pricing in nearly 83.3% possibility of 25 basis points (bps) Fed rate cuts in November, according to the CME FedWatch Tool.

New York Fed President John Williams said on Thursday that he expects more rate cuts lie ahead as inflation pressures continue to moderate and the economy remains solid. Meanwhile, Chicago Fed President Austan Goolsbee noted he sees a series of rate reductions over the next year to year and a half, noting that inflation is now near the Fed's 2% target, the economy is about at full employment, and the Fed's goal is to freeze those conditions in place.

However, Atlanta Fed President Raphael Bostic is open to the idea of skipping a rate cut in November if economic data still hasn't aligned with the Fed's target figures in time.

On the Kiwi front, the dovish stance of the Reserve Bank of New Zealand (RBNZ) might cap the pair’s upside in the near term. The markets bet on more aggressive easing in November. Swaps imply there are a further 45 bps of easing to come at the RBNZ's November meeting. However, the positive development surrounding the Chinese economy could lift the China-proxy New Zealand Dollar (NZD) as China is a major trading partner to New Zealand.