NZD pushing for a break above US$0.63 before year end
Daily Currency Update
The New Zealand dollar recovery continued through trade on Thursday, marking fresh 4-month highs near US$0.63. Having tracked sideways through much of the local session, the NZD climbed overnight, breaking above Wednesday’s high to mark US$0.6293 amid growing expectations the Federal reserve has met inflation targets and is on track to cut rates through H1 2024. With Q3 GDP growth revised down and leading indicators ahead of the PCE deflater report (the Fed’s preferred measure of inflation) suggesting price pressure has fallen back below 3%, and inside the FOMC’s 2%-3% target band, yields were forced lower. 2-year notes fell back to 4.3% while 10 year yields trade through the post-FOMC meeting low, marking 3.83% before recovering back toward 3.9%. With the USD on the back foot the NZD was among the best performing majors and continues to mark higher highs and higher lows, suggesting momentum remains with buyers leading into the holiday period.With little on the domestic docket to guide direction into Christmas, our focus turns to Japanese CPI data and the US PCE deflator report. With direction heavily influenced by both Federal Reserve and Bank of Japan policy expectations a surprise read in either metric could spark last minute pre-Christmas volatility.
Key Movers
The USD fell against all G10 currencies through trade on Thursday, as the DXY index fell to its lowest level since the December FOMC policy meeting and seems set on testing levels not seen since the start of August. A downward revision in Q3 GDP growth and a softer than anticipated Philadelphia Fed manufacturing survey emboldened market bets the Fed will be forced to cut rates in H1 2024. Inflation within target has been the key goal for Fed officials and with leading indicators suggesting price pressures may already sit within the Fed’s target band, analysts and investors are beginning to price out an easing in policy conditions as the Fed looks to soften the economic downturn.Our attentions turn now to the PCE deflator report as a key risk event leading into Christmas. We anticipate a softer print with the annual rate falling to 3.3% from 3.5%, which importantly will mean the rolling 6-month average will fall into the low 2’s well within the Fed’s 2%-3% target band. Such a read all but affirms market expectations the Fed has done enough and will embolden bets for a Q1 rate cut, adding more downward pressure on the USD, while a surprise to the upside could afford the USD a short-term reprieve leading through the end of the year.
Note: This is the last daily commentary for 2023. Thank you for your readership, have a wonderful holiday period and we look forward to connecting again on January 8th.
Expected Ranges
- NZD/USD: 0.6220 - 0.6320 ▲
- NZD/EUR: 0.5650 - 0.5750 ▲
- GBP/NZD: 2.0050 - 2.0350 ▼
- NZD/AUD: 0.9200 - 0.9300 ▼
- NZD/CAD: 0.8300 - 0.8400 ▲