NZD unable to maintain domestic gains ahead of key Fed policy update
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Daily Currency Update
The New Zealand dollar outperformed through the domestic session on Tuesday up half a percent following comments from RBNZ chief economist Paul Conway. Conway downplayed recent softness in GDP data and indicated RBNZ policy makers see little reason to shift the current hawkish bias. While inflation continues to fall, offshore forces and growing domestic migration are expected to keep prices elevated for longer, allowing the RBNZ to remain steadfast in their commitment to higher rates. Having touched intraday highs at US$0.6135, the NZD then edged back toward US$0.6110 in overnight trade amid a surge in US treasury yields. Stronger than anticipated US jobs data helped underpin an uptick in short-term yields, lifting the USD off intraday lows. Our attentions turn now to tonight’s Fed policy update. Implied monetary policy expectations continue to drive direction and any signal from the FOMC that allows markets to better price 2024 rate cuts will likely spur volatility and shape broader expectations for NZD performance through Q1.Key Movers
Price action across majors was somewhat muted through trade on Tuesday with the DXY index tracking marginally lower on the day, down 0.2%. The euro outperformed, bouncing off lows seen on Monday after eurozone Q4 GDP data surprised to the upside. While growth was flat, the fact the EU avoided a technical recession helped bolster European treasury yields and lift the euro back toward 1.0850. With the GBP and JPY tracking within a narrow range, our focus shifts to tonight’s FOMC policy update and China PMI data ahead of Thursday’s Bank of England rate statement and Eurozone inflation data. At the risk of sounding like a broken record, implied monetary policy and rate expectations remain the driving force behind near-term direction. This week's policy and inflation updates will prove key in shaping direction. A divergence in market pricing and central bank guidance through the last two months has elevated volatility and any indication of trajectory and timing of central bank rate cuts will prompt activity across currency markets into the weekly close.Expected Ranges
- NZD/USD: 0.6050 - 0.6200 ▼
- NZD/EUR: 0.5600 - 0.5700 ▼
- GBP/NZD: 2.0500 - 2.0800 ▲
- NZD/AUD: 0.9250 - 0.9350 ▲
- NZD/CAD: 0.8150 - 0.8250 ▼