NZD rallies on Month-end rebound ahead of key Federal Reserve update

Key Movers

There was ample to digest through trade on Friday with the GBP outperforming, the USD holding flat and the Euro and Yen sliding. A downside miss in German CPI and GDP data, coupled with a downturn in Spanish CPI prompted investors to downgrade expectations for broader Euro area growth while paring back headline inflation expectations. With growth already weaker than anticipated in Q4 2022 we expect another sluggish quarterly performance. With inflation pressures easing data pricing for this week’s ECB policy meeting retreated, dampening expectations for another 50-point rate adjustment. The Euro gave up 1.10, falling to intraday lows at 1.0960, before finding support into the weekly close.
The Japanese Yen was the day's worst performer, falling a chunky 1.7% after the Bank of Japan maintained its ultra-easy policy setting and proffered a dovish post-meeting statement. While the Bank of Japan removed its forward guidance on rates, allowing some flexibility in the future the decision to adopt a 12-18 month review of monetary policy afforded the market with little hope of a quick review in policy settings. Governor Ueda did acknowledge policy could be adjusted throughout the review, but in the same breath warned the economy faced greater risks from tightening too quickly than delaying rate adjustments. The Yen tumbled and the USD surged through 136 openings this morning buying 136.16.
Our attentions turn now to the Fed and ECB policy updates. We anticipate both banks will hike interest rates forcing our attention to shift to the accompanying rate statements. A string of softer macro sets could force policymakers to consider pausing the tightening cycle. The Fed’s outlook will prove pivotal in shaping near-term direction across currency markets.