NZD range bound ahead of action packed week
Daily Currency Update
The New Zealand dollar closed the day flat against the USD in a largely uneventful start to the week. With no headline data on hand to drive direction, investors appeared content in managing positions ahead of what promises to be an action-packed week ahead.The NZD tracked sideways through the domestic session, bouncing between US$0.615 and US$0.6125, before jumping toward intraday highs at US$0.6150. Outside a downward correction in US inflation expectations, there appears little catalyst for the intraday upturn and the NZD was unable to retain gains into the daily close sliding back toward US$0.6120.
While flat against the USD, the NZD slipped against the AUD giving up AU$0.9090 to touch AU$0.9060, while sliding below 0.57 against the euro and 85.50 against the yen.
Our attention turns now to US CPI data. The print will prove pivotal in shaping FOMC expectations, with a read outside the anticipated 0.3%-0.4% month-on-month increase likely to cause significant price action. A softening in inflation pressure could help drive the NZD through US$0.62, while stubborn price pressures will elevate calls for another rate hike and likely force the NZD back below US$0.61.
Key Movers
Price action through Monday was somewhat muted as investors looked to pause, take stock and reassess positions ahead of what promises to be an action-packed week. With only second-tier macroeconomic data on hand to steer direction, most majors tracked within a narrow trading range while the GBP underperformed.Comments from Bank of England and Monetary Policy Committee member, Catherine Mann, elevated fears policymakers will be forced to continue raising interest rates into restrictive territory as they fight to control inflation. Mann said she was still concerned about persistent pressure on inflation, in particular sticky core inflation. While UK yields rose, the GBP slid off intraday highs near 1.26, testing a break below 1.25.
With the UK economy showing significant signs of stress and recession, ongoing rate hikes to curb inflation will only act to restrict growth further, weighing on long-term Sterling expectations. With the EUR and JPY trading flat on the day, our attention turns to UK labour market data and US CPI data. Any print outside median estimates will likely prompt a shift in market positioning ahead of the FOMC policy update Thursday.
With much of the market expecting policymakers will pause the tightening cycle, a surprise uptick in inflation pressures could drive a last-minute run to price in yet another 25-point hike.
Expected Ranges
- NZD/USD: 0.6050 - 0.6220 ▲
- NZD/EUR: 0.5650 - 0.5750 ▼
- GBP/NZD: 2.0280 - 2.0620 ▼
- NZD/AUD: 0.9020 - 0.9120 ▼
- NZD/CAD: 0.8150 - 0.8220 ▲