New Zealand dollar holds above US$0.62 

Key Movers

Last week the Federal Reserve (Fed) cut its benchmark interest rate by 50 basis points (bps), marking the first reduction in four years. The half-point move signals that the Fed is acting aggressively to keep the US economy from stalling. The US economy is showing signs of deceleration, but there are also signs of the economic activity holding resilient. The Fed has stated that the pace of the easing cycle will depend on the incoming data.

U.S. business activity was steady in September, however average prices charged for goods and services rose at the fastest pace in six months, potentially hinting at a pick-up in inflation in the coming months. S&P Global said on Monday that its flash U.S. Composite PMI Output Index, which tracks the manufacturing and services sectors, was little changed at 54.4 this month, compared to a final reading of 54.6 in August. A reading above 50 indicates expansion in the private sector.

September's reading aligns with reports this month, including retail sales, that have suggested the economy maintained its solid growth momentum in the third quarter. The survey's measure of prices paid by businesses for inputs increased to a one-year high of 59.1, from 57.8 last month. Its gauge of prices charged rose to 54.7 from 52.9 in August. Rising costs, mostly in the services sector linked to wage raises, were attributed to the increase.

At face value, this would suggest that price pressures were building up again, but there is growing evidence that inflation is cooling. The survey's flash manufacturing PMI dropped to a 15-month low of 47.0 from 47.9 in August. Economists polled by Reuters had forecast the index for the sector, which accounts for 10.3% of the economy, rising to 48.5. Its flash services PMI dipped to 55.4 from 55.7 in August, broadly in line with economists' expectations for a reading of 55.2.