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US inflation surprise spurs overnight volatility

Friday 11 February, 2022

Daily Currency Update

The New Zealand dollar enjoyed a bumpy ride through the overnight session as markets responded to the latest upside surprise in US inflation pressures. Having tracked sideways through local trade the NZD gave up 0.6690, dipping to intraday lows at 0.6657, as US inflation data for January showed a surprise surge in price pressures. The uptick in inflation markets the 8th print of the last 10 that inflation data has surprised to the upside and all but guarantees the Fed will raise rates by 50 basis points next month. Having rushed to firm bets for a US rate hike, markets curiously turned on the USD relinquishing gains and allowing the NZD to pulse back through 0.67 to mark session highs at 0.6730. The NZD was however unable to hold onto gains slipping into the daily close and this morning’s open. Our attentions turn now to domestic inflation expectations. The RBNZ inflation expectation survey is due today with 2-year inflation rates expected to test 3% and 5-year rates closing in on 2%. With medium term inflation estimates key in shaping policy expectations we may see some volatility into the weekly close.

Key Movers

It was all about US CPI inflation data on Thursday with markets sidelining major bets until after the data printed. Having anticipated a modest easing in price pressures, markets were surprised by the uptick in headline and core inflation with baseline prices pushing above 7.5% year on year and core good costs extending beyond 6% their highest annual appreciation in 40 years. The sustained surge in prices marks the 8th month in the last 10 that CPI data has surpassed market estimates, highlighting just how quickly inflation pressures have escalated. While the uptick all but guarantees the Fed will adopt an aggressive approach in normalising monetary policy the market curiously moved against the USD forcing the DXY index lower on the day. The euro eyed 1.15 touching intraday highs at 1.1490, while the GBP made a brief foray above 1.36. With Thursday’s key risk event now behind us our attentions flip to US consumer sentiment data ahead of next weeks Retail sales print and UK CPI read.

Expected Ranges

  • NZD/USD: 0.6630 - 0.6730 ▲
  • NZD/EUR: 0.5780 - 0.5880 ▼
  • GBP/NZD: 2.0230 - 2.0450 ▲
  • NZD/AUD: 0.9280 - 0.9350 ▼
  • NZD/CAD: 0.8450 - 0.8530 ▲