NZD steady in face of Hawkish Federal Reserve
Daily Currency Update
The New Zealand dollar opens this morning in much the same position as it started on Wednesday, having failed to hold onto a break above US$0.5980. The NZD found support leading into the Federal Reserve Open Market Committee meeting as treasury yields moved lower and investors positioned for an end to Fed rate hikes. Instead, the Fed offered a Hawkish hold leaving rates unchanged and signaling one final hike before the end of the year. Yields spiked following the meeting and comments from Fed Chari Jerome Powell lifting the US dollar upward and driving the NZD back below US$0.5950 and toward US$0.592/30.Our attention now turns to domestic GDP data. We expect a near half percent uptick in activity through Q2, a result which will see the economy lifted out of a technical recession, rebounding after the string of natural disasters that rocked the country in the early part of the year. Despite the rebound, growth will likely remain sluggish moving through Q3 and Q4 and today’s data print is unlikely to change the RBNZ narrative. Offshore, the Bank of England policy meeting headlines.
Key Movers
Price action across major currencies was dominated by the US Federal Reserve (Fed) policy meeting and the UK CPI inflation update. As expected, the FOMC left rates on hold, yet trailing commentary from Fed Chair, Jerome Powell and the accompanying statement suggested the Fed is committed to its higher for longer mantra. Median estimates suggest that one final hike will be appropriate before year-end. However, the pace of retracement through 2024 will be slower than first anticipated, with peak rates at the end of 2024 expected to remain above 5%, up from 4.65 previously. Against a backdrop of higher US rates, the US dollar index jumped back above 105, pushing on to match last week’s post mark high.In contrast, the Great British Pound was the day’s big loser, slumping on the back of a softer-than-expected CPI print. Inflation in the UK fell from 6.8% to 6.7%, moving against market estimates of a small uptick back to 7%. Core inflation rose at a slower pace than expected, up 6.2% against a 6.8% anticipated rise. The pound fell to its lowest level since May, following the data as markets repositioned expectations for a Bank of England rate hike this evening. The market is now divided as to whether the MPC will lift interest rates amid rising speculation policymakers may opt to hold rates. With just 22 basis points of tightening priced into the curve, the market is positioning for an end to this current tightening cycle and tonight's decision and accompanying statement will prove key in determining near-term GBP value.
Expected Ranges
- NZD/USD: 0.5880 - 0.5980 ▲
- NZD/EUR: 0.5520 - 0.5620 ▲
- GBP/NZD: 2.06280 - 2.0920 ▼
- NZD/AUD: 0.9180 - 0.9250 ▼
- NZD/CAD: 0.7950 - 0.8050 ▲