NZD bolstered by hawkish RBNZ commentary and weaker USD
Daily Currency Update
The New Zealand dollar outperformed through trade on Tuesday, extending a break above US$0.62 to touch highs not seen since mid-July. Improved commodity prices helped both the NZD and AUD advance, while hawkish commentary from RBNZ governor Adrian Orr helped elevate expectations NZ rates may remain higher for longer. Orr testified on Monetary Policy in front of the Finance and Expenditure Committee noting that while GDP remains soft, business investment and private consumption are rebounding faster than expected and a growing migration rate threatens to add heightened pressure on domestic inflation drivers. Having extended toward US$0.6250 the NZD continued its advance through the overnight session, marking fresh highs just north of US$0.6270 buoyed by improved risk sentiment and comments from Fed speakers, where the idea of 2024 rate cuts was supported. With little of note on the domestic ticket our attentions turn to UK inflation data and Fed commentary as more policy makers hit the wires. US yield performance and market rate expectations remain the key driver influencing direction into the end of the year and commentary from Fed officials will prove critical in shaping the narrative.Key Movers
The USD is weaker this morning, giving up ground against all majors bar the Japanese yen, as commentary from key Fed officials affirm market expectations for 2024 rate cuts. Overnight, Fed speakers suggested the Fed would cut interest rates if inflation continues to track towards target as demand for labour and price pressures normalise. While US yields were little changed, the curve retained a flattening bias with two year notes up 1 basis point and 10 year notes down 1 basis point. The 10-year rate traded to a low of 3.89%, down over 1% from highs near 5% in October. With yields on the backfoot and equities rallying the USD gave up ground to the euro and GBP, giving up 1.0980 and 1.27, while finding some support against the yen. Having slipped below 142.50 the USD pushed back above 143 against the yen after the Bank of Japan (BoJ) offered little indication it is preparing to move away from its program of negative interest rates. While markets expected the BoJ would maintain the status quo there was scope to suggest they may move earlier in lifting rates out of negative territory. Instead, they left the ultra easy policy program in place and more importantly provide little insight as to when policy may change, suggesting a more certain outlook on growth is needed before a move away from negative rates can be considered.Our attentions turn now to UK CPI data. With headline rates expected to ease we look to core inflation as a key marker driving BoE policy in the new year.
Expected Ranges
- NZD/USD: 0.6180 - 0.6300 ▲
- NZD/EUR: 0.5650 - 0.5750 ▲
- GBP/NZD: 2.0200 - 2.0400 ▼
- NZD/AUD: 0.9220 - 0.9320 ▲
- NZD/CAD: 0.8300 - 0.8400 ▲