Home Daily Commentaries NZD tests multi-month highs before Fed officials attempt to douse market expectations

NZD tests multi-month highs before Fed officials attempt to douse market expectations

Daily Currency Update

The New Zealand dollar tracked within a relatively narrow range through trade on Monday, bouncing between US$0.6205 and US$0.6250. With little of note on the domestic docket, the NZD edged toward levels not seen since mid-July, marking session highs at US$0.6248.

Market expectations the Fed will begin paring rate hikes as early as March 2024 continue to spur NZD gains and direction, with comments from key officials sort to douse market exuberance. Policymakers questioned market pricing and suggested that price action and expectations have disappeared from reality. US yields edged higher in response and the NZD tracked back toward US$0.62 through the overnight session.

With most key risk events now behind us, our attention turns to NZ trade data and the ANZ’s business outlook survey ahead of the Bank of Japan (BoJ) policy meeting. A surprise rate adjustment could spur significant market volatility, yet we expect the NZD will continue to trade between the newly formed higher range, between US$0.60 and US$0.64 through the end of 2023.

Key Movers

Price action across currency markets was largely contained through trade on Monday as market attention turned to the BoJ policy meeting. US treasury yields edged higher as Fed officials pushed back against market expectations for rate cuts. Market pricing for a rate cut as early as March 2024 spiked following the Fed policy meeting last week, driving the USD lower.

Policymakers have since attempted to douse market pricing for a rate adjustment suggesting the market has gotten “a little ahead of itself”, reiterating the importance of continuing to assess conditions and ensure policy remains restrictive to bring inflation back to target. With US yields higher, the USD edged upward against the euro while the pound slipped back below 1.2650 and the yen underperformed.

Our attention turns now to the BoJ policy meeting and announcement. While we expect they will leave policy unchanged, there is the possibility of a surprise move to lift rates out of negative territory. Officials have signalled the time has come to end the Bank's uber-accommodative rates platform and while we don’t expect they will pull the trigger until Q1 2024, a shock move will trigger a significant yen rally.

Expected Ranges

  • NZD/USD: 0.6150 - 0.6250 ▼
  • NZD/EUR: 0.5650 - 0.5750 ▼
  • GBP/NZD: 2.0200 - 2.0500 ▼
  • NZD/AUD: 0.9220 - 0.9320 ▲
  • NZD/CAD: 0.8250 - 0.8420 ▲