NZD resilient, retracing some of Wednesday’s losses amid improved risk sentiment

Key Movers

Price action has calmed following Wednesday’s hotter than anticipated US CPI print allowing equities and risk assets to recover amid a retracement in treasury yields. US PPI data printed softer than expected, a relief after the hot CPI print, easing expectations for the Fed’s preferred inflation measure, the PCE deflator. With jobless claims falling last week, resilience across inflation and labour market metrics all but eliminates any hope of a June rate cut and we are now looking to August and September as the most likely timing for a first rate cut. In contrast the ECB, while leaving rates on hold, did little to assuage calls for a rate cut in June. The market is now pricing a full rate cut for June and two and half through the end of the year, almost a full cut more than what is currently priced for the Fed. The divergence in expectations forced the euro through 1.0750 and toward overnight lows at 1.0725. The yen is also soft despite the correction in yields and the USD has jumped above 153, a level not seen in 34 years. Ministry of Finance officials have issued a warning shot to markets threatening intervention and calling yen weakness “significant”. Further USD gains against the yen will likely be met with some trepidation.

Our attentions turn now to UK GDP data, China trade and US consumer sentiment and inflation expectations for direction into the weekly close.