NZD range bound as rising inflation offsets stronger US data
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Daily Currency Update
The New Zealand dollar tracked sideways through much of Thursday, bouncing between US$0.5910 and US$0.5930, and is largely flat when compared with most other trading partners. Domestic CPI data for June confirmed an uptick in inflation pressures, with prices across most measured items rising faster than the RBNZ’s 2% target. Food prices rose 4.6% while rents jumped 2.6% and electricity climbed 10.4% lifting expectations for next week's quarterly inflation report. We expect Q2 inflation to jump 0.8% taking the annual rate of inflation back to 2.9%, signaling a possible move back above 3% in Q3. The market reaction was somewhat muted, with many analysts buying into the notion that the inflation effects are a transitory byproduct of the US tariff agenda and that the RBNZ will continue its easing cycle through year-end. Having slipped below US$0.5930, the NZD trended towards US$0.59 amid a string of stronger US data sets. Having found support at US$0.5910, the NZD closed the day only marginally below the daily open and now buys US$0.5933.Our attention now turns to Japanese CPI numbers and US consumer sentiment data for direction into the weekly close.
Key Movers
The US dollar strengthened Thursday, buoyed by a string of stronger data sets, headlined by a surge in retail sales. The DXY index jumped a quarter percent, recouping all the losses suffered in the wake of the weeks earlier Fed credibility scare. Markets have fully recovered from the damage that came after reports emerged that the President was considering firing Fed chair Jerome Powell, yet the President’s tirade against the Fed seems far from over. Trump took to Truth Social in the hours after the day's data releases, imploring policy makers to “LOWER THE RATE!!!”. In any normal environment, the stronger data sets coupled with evidence of rising inflation would prompt discretion and a measured approach to future policy, but that is simply not the reality under this administration. Through Thursday evening, Kevin Warsh, a front-runner to succeed Jerome Powell as Fed Chair, appeared on CNBC, suggesting the Fed’s hesitancy in lowering rates had sparked a crisis of credibility. Warsh went on to say the President is completely justified in pushing the Fed publicly. While Warsh did qualify his remarks, affirming his belief in Fed Independence, the comments add another layer of uncertainty in an already volatile market.In other news UK employment data showed the unemployment rate jumped to 4.7% in the three months through May, a four-year high. With wages and inflation moderating, calls for the Bank of England to lower rates in August amplified, and markets have now priced a 90% probability of a rate cut.
Our attentions today turn to Japanese CPI data and US consumer sentiment numbers as the major macro items on the agenda, while US trade policy and political headlines continue to steer sentiment.
Expected Ranges
- NZD/USD: 0.5900 - 0.6000 ▼
- NZD/EUR: 0.5080 - 0.5130 ▲
- GBP/NZD: 2.2500 - 2.2800 ▲
- NZD/AUD: 0.9080 - 0.9180 ▲
- NZD/CAD: 0.8100 - 0.8200 ▲