NZD powers back above US$0.62 after dovish Fed policy update

Daily Currency Update

The New Zealand dollar opened higher this morning, having surged back above US$0.62, following the Federal Reserve’s (Fed) latest policy update. The NZD maintained a narrow range through the local session and led into the Fed’s December Federal Open Market Committee policy meeting as investors sidelined major bets. As expected, the Fed left rates on hold and many anticipated the Fed would continue to proffer a united message, reiterating that it is simply too soon to talk about easing financial conditions and that one more rate hike may still be required. Instead, Federal Reserve Chair, Jerome Powell offered a dovish assessment of future rate conditions, noting it is important the Fed “not make that mistake” of holding higher rates for too long, admitting the Fed discussed the path to rate cuts in today’s policy agenda. These comments sent yields tumbling with 2-year rates hitting their lowest level in 5 months as markets price out 144 basis points of cuts through 2024. The NZD bounced off US$0.6120 lurching through US$0.6150 and US$0.62 marking session highs at US$0.6207 at time of writing.

With the Fed policy meeting behind us, our attention turns to domestic Q3 GDP data. We expect a sluggish print with growth ranging between 0 and 0.3% for the quarter. A stronger print could help underpin a break above US$0.62 and firm supports above this level into the end of the year.