Consumer prices in the USA came in unchanged in the month of June, denting expectations the Federal Reserve will again raise interest rates this year. Inflation has climbed just 1.6 percent from a year ago.
U.S. Treasury yields dropped to multi-week lows as the benign inflation data and unexpected fall in retail sales fuelled doubts about an interest rate increase later this year. Inflation came-in flat versus an expected.2% gain, and retail sales fell by.2% against the expectation for a.1% gain.
In early trading, US 10-year yield fell to 2.308 percent, from 2.331 percent before the data.
"This cements the weaker trend in the dollar and lower USA yields and I think this story has got legs", he said.
Borkin said if the numbers show an "inching higher" from an underlying and core perspective the market will be happy to continue to price in hikes and keep the NZD supported but "if its weaker across the board, you'll see the kiwi follow suit", he said.
While prices have backtracked a bit in recent months, the economy is still operating with tight labor markets, she said.
The energy index declined again in June, falling 1.6%, including a 2.8% drop in the price of gasoline. US retail sales unexpectedly fell in June for a second straight month, which could temper expectations of strong acceleration in economic growth in the second quarter. Not surprisingly, this coincided with a weaker dollar: the USD tumbled 0.4% on the DXY index to just 95.34, its lowest since late September 2016.
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The dollar extended losses against a basket of currencies on the data while prices for U.S. government bonds rose. Platinum and palladium advanced 1.5% and 0.6%, respectively.
U.S. West Texas Intermediate (WTI) crude futures CLc1 rose 46 cents to settle at $46.54 per barrel. From what we've seen of recent - both the European Central Bank and the BoJ have made efforts to talk-down their currencies and, if they're effective next week, this could bring a modicum of strength to the U.S. Dollar that would essentially amount to a retracement of the "bigger picture' bearish trend". Waiting too long to remove accommodation could eventually require the Fed to raise rates too rapidly and risk pushing the economy into recession. Rental costs rose, with owners' equivalent rent of primary residence increasing 0.3 per cent after advancing 0.2 per cent in May. The S&P 500 gained 11.44 points, or 0.47 per cent, to 2,459.27 and the Nasdaq Composite added 38.03 points, or 0.61 per cent, to 6,312.47. The drop came after the lacklustre U.S. data raised doubts about United States economic growth and whether the Fed will hike rates again this year.
Money markets pricing suggests less than a 50 percent chance of a hike over the next year, according to CME's FedWatch tool.
Even before today's report, real yields were declining, with the yield on a 10-year TIPS dropping from 0.66% to 0.58% in less than a week.
The loonie was about 0.1 percent weaker early on Friday at C$1.2729 to the dollar but is up nearly 1.1 percent this week.
The euro gained 0.64 per cent to US$1.468 (RM6.28).