Home Daily Commentaries NZD stuck below US$0.61 as eyes turn to US inflation report

NZD stuck below US$0.61 as eyes turn to US inflation report

Daily Currency Update

The NZD maintained a relatively narrow trading range through Wednesday, well and truly contained below US$0.61 as market attentions turn toward tonight’s all-important US inflation update. The NZD found support early creeping back above US$0.6080 and marking intraday highs at US$0.6095, following a stronger-than-anticipated Chinese Yuan fixing. The Yuan strengthened against the USD despite further evidence of deflation within the Chinese economy. The CPI index fell 0.3%, the first decline in more than 24 months, a clear example of weak consumer demand. With most other major economies struggling to control price pressures, this latest print heaps more pressure on policymakers to ramp up programs of monetary and fiscal support. While range bound on the day, China’s economic woes and a weakened Yuan will continue to act as a headwind limiting NZD gains through the near term.

Our focus shifts now to the US CPI report for July. We expect a monthly increase of 0.2% across both core and headline prints. A softer print would suggest price pressures are easing quicker than expected and amplify calls for the Fed to end its tightening cycle, potentially helping push the Kiwi back toward US$0.61/62, while an uptick in price pressures all but guarantees another rate hike before year-end and could be a catalyst that drives a move below US$0.60. Given the significance of tonight’s risk event, there is ample scope for volatility.

Key Movers

Price action among major units was largely subdued through trade on Wednesday with the dollar index little changed. An uptick in Oil and LNG prices helped the Norwegian Kroner and the Euro and added a floor under the CAD. The Euro crept above 1.0950 but failed to extend through 1.10 while the GBP slipped back toward 1.27, having given up 1.2750, and the Yen again allowed the USD to close in on 144. Attentions now turn to US CPI data as the primary item on the week’s macro docket. Estimates suggest a 0.2% increase in both core and headline inflation with the annual rate edging nearer the Fed’s 2-3% target. Another downward surprise will amplify calls for the Fed to end its tightening cycle as price pressures moderate faster than expected. Any stagnation in deflationary pressures will give the Fed scope to push forward with at least one more rate hike. Policymakers have highlighted the importance of reviewing key data sets ahead of future rate hikes thus tonight’s CPI report offers ample scope for volatility as markets react and adjust expectations for future Fed policy and its risk implications.

Expected Ranges

  • NZD/USD: 0.5980 - 0.6150 ▼
  • NZD/EUR: 0.5480 - 0.5580 ▼
  • GBP/NZD: 2.0880 - 2.1120 ▼
  • NZD/AUD: 0.9220 - 0.9320 ▲
  • NZD/CAD: 0.8080 - 0.8280 ▼