Dollar Firm With Inflation Data in Focus, Kiwi Sinks as RBNZ Holds Rates

CURRENCY - TOKYO. The dollar inched up as traders brushed off U.S. manufactured goods data and awaited the Federal Reserve's preferred measure of inflation for clues on when the central bank may start cutting interest rates.

Meanwhile, the Reserve Bank of New Zealand (RBNZ) held the cash rate steady and issued commentary seen as dovish, sending the kiwi tumbling to over a one-week low.

The Aussie was also hanging near its lowest in over a week after inflation data came in softer than expected, reinforcing expectations that domestic interest rates are unlikely to increase further.

In the U.S., orders for durable goods fell 6.1% last month, data showed on Tuesday, exceeding the 4.5% decline forecast by economists polled by Reuters.

However, markets were unfazed by the manufacturing figures, with eyes on U.S. core personal consumption expenditures (PCE) price index due on Thursday. Forecasts are for a 0.4% gain.

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Markets have largely priced out a rate cut at both the Fed's March and May meeting, CME's FedWatch Tool showed. The chance of a cut in June sits around 51%.

With market expectations more closely aligned with the Fed's latest projections and comments, traders would only respond if they see a trend break in tier one data, especially anything "hinting at growth weakness," said Charu Chanana, head of currency strategy at Saxo.

The focus now shifts to Eurozone inflation on Friday, Chanana said.

The U.S. dollar index, which measures the currency against a basket of peers, was last up 0.14% at 103.98.

New Zealand's central bank held the cash rate steady at 5.5%, catching markets by surprise as policymakers said the risks to the inflation outlook have become more balanced.

The RBNZ also trimmed its forecast cash rate peak to 5.6% from a previous projection of 5.7%.

"With a cash rate at 5.5%, the 10 basis points of wriggle room is simply there to remind us that they’ll hike if they need to but the bias is that they probably won’t," said Matt Simpson, senior market analyst at City Index.

The kiwi slid around 1% to its lowest since Feb. 16 at $0.61110 in response.

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The Australian dollar also fell after data showed inflation at an annual pace of 3.4% in January, unchanged from December and under market forecasts of 3.6%.

Although inflation remains above the Reserve Bank of Australia's (RBA) 2-3% target, "it is close enough to expect the RBA to hold rates steady," said Simpson.

The Aussie was last down 0.44% at $0.65140.

The euro ticked down as Europe awaited its own slew of inflation reports, with German states, France and Spain scheduled to release price data on Thursday ahead of the euro area's figures due on Friday. It was 0.17% lower at $1.08270.

Sterling was last trading at $1.2660, down 0.2%.

Elsewhere, the yen weakened 0.08% versus the greenback to 150.61, after edging to 150.08 against the dollar overnight.

In cryptocurrencies, bitcoin was last up 0.71% at $57,132.50 as it continued to surge after jumping to a more than two-year high on Tuesday.

Ether rose 0.27% to $3,258.28.