Kiwi gives up gains after Fed Rules out March rate cut
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Daily Currency Update
The New Zealand dollar opened lower this morning after the Federal Reserve (Fed) left rates unchanged and all but ruled out a rate cut in March. Having tracked sideways through the domestic session the NZD found support in weaker-than-expected US Payroll data and a softer employment cost index report. While payrolls and job growth remain strong, the slowdown in employment costs suggests wage pressures are easing which could help accelerate deflation through Q1 and Q2. Markets lifted expectations that the Fed may cut rates on the back of the data and the NZD touched intraday highs at US$.6167 but was forced to wind back the move after the Fed elected to leave rates on hold and affirmed its commitment to getting inflation back to the 2% target. The Federal Open Market Committee (FOMC) acknowledged that it will likely be appropriate to dial back the funds rate target at some point this year but while inflation remains above the 2% target policymakers remain committed to maintaining the tighter conditions, all but ruling out a March rate cut. With pricing for a March rate cut falling from 60% to less than 40% the NZD marked fresh lows At US$0.6107. With a key risk event behind us, our attentions turn now to Eurozone inflation, the Bank of England policy meeting and a string of US data sets for direction through trade on Thursday.Key Movers
Price action through the Federal Reserve (Fed) policy meeting has been volatile as markets adjust expectations for Fed rate cuts. With pricing for a March rate adjustment lifting to near 60% probability leading into the policy update and rate statement following a string of softer labour market cues, the USD DXY index fell before pushing higher as markets were forced to unwind bets and the probability of a rate adjustment before May fell below 40%. With markets firming on bets for a European Central Bank (ECB) rate cut in April, in response to further signs inflation pressures are cooling, the euro slipped off intraday highs above 1.0880 finding support at 1.0801. With December inflation data due this evening, we can expect further EURUSD volatility and a potential divergence in implied monetary policy expectations. If the ECB does indeed move to cut rates before the Federal Reserve, we can expect the euro will face near-term downside pressure. Our attentions turn now to Eurozone inflation, the Bank of England policy meeting and a string of US data sets for direction through Thursday.Expected Ranges
- NZD/USD: 0.6080 - 0.6180 ▼
- NZD/EUR: 0.5620 - 0.5700 ▲
- GBP/NZD: 2.0600 - 2.0800 ▲
- NZD/AUD: 0.9250 - 0.9350 ▲
- NZD/CAD: 0.8180 - 0.8280 ▲