NZD finds support in US inflation report
Daily Currency Update
The New Zealand dollar crept higher through trade on Tuesday buoyed by a broadly weaker US dollar. After a lacklustre domestic trading session wherein, a weaker yuan forced the NZD toward intraday lows just above US$0.61 the NZD lurched upward overnight marking intraday highs at US$0.6180. US inflation data printed largely in line with market expectations, driven lower by a correction in gasoline prices. Annual inflation fell to its lowest level since March 2021, elevating calls for the Fed to skip hiking rates when it meets later this week. OIS market pricing shows just a 3 basis point of tightening at the Federal Open Market Committee meeting tomorrow dampening demand for the USD and helping elevate the NZD. While consensus is for policy makers to leave rates on hold market pricing suggests at least one more rate hike in either July or August, thus our attentions are keenly attuned to the median dot plot and tone of Fed President Jerome Powell’s post-meeting press conference. Any hint that suggests the current tightening cycle is nearing its end should help elevate the demand for the NZD.Key Movers
The pound is the strongest major unit through the last 24 hours, while the USD is broadly weaker and the yen the worst performer. The pound surged back above US$1.26 after UK labour market data printed much stronger than anticipated. Unemployment fell to 3.8% while declines in payrolls in April were revised upward in May and weekly earnings accelerated at an uncomfortable pace. Tight labour market conditions elevated expectations for Bank of England tightening with an astounding 137 points of additional rate hikes now priced in through to February 2024. Assuming the price rate hikes are delivered the cash rate will be left at 5.75% through the next 8 months with some calls for the Bank of England to push through 6% unless inflation begins reversing course.The US dollar is broadly weaker after US CPI data printed in line with consensus expectations. The CPI index excluding food and energy rose 0.4%, while additional core measures that exclude housing and energy showed prices rose just 0.2% elevating calls for the Fed to push back any future rate hikes at its meeting this week. With OIS market pricing all but pricing out a rate hike our attentions are keenly attuned to the post-meeting commentary and press conference for direction.
With UK rates leading global rates higher the yen underperformed falling back below ¥140 against the USD while the euro pushed above US$1.08 against the weaker dollar and expectations of an European Central Bank rate hike later this week.
Expected Ranges
- NZD/USD: 0.6050 - 0.6250 ▲
- NZD/EUR: 0.5650 - 0.5750 ▲
- GBP/NZD: 2.0380 - 2.0580 ▲
- NZD/AUD: 0.9020 - 0.9120 ▲
- NZD/CAD: 0.8130 - 0.8230 ▼