Home Daily Commentaries NZD upturn stalls as markets await key US inflation update

NZD upturn stalls as markets await key US inflation update

Wednesday 11 January, 2023

Daily Currency Update

The New Zealand dollar tracked lower through trade on Tuesday unable to maintain its break above US$0.64 ahead of Thursday’s key US inflation update. With little of note on the macroeconomic ticket the NZD tracked sideways through the domestic session before succumbing to a broader USD rebound, marking overnight lows just south of US$0.6350. Having enjoyed a largely positive start to the new year, consolidating gains won through December, investors appear content in moderating further upside ahead of key inflation markers. Renewed optimism surrounding China’s economic re-opening and a broader correction in US rate and yield expectations should continue to lend support to the NZD through the near term. We expect the currency will enjoy support at and around the current level, bouncing between US$0.62 and US$0.65 over the coming weeks. Our short term outlook maintains a positive bias, skewed to the upside on the heels of USD weakness and renewed appetite for risk. That said hard lined and aggressive RBNZ monetary policy should induce a recession toward the middle of the year. As inflation pressures ease, policy makers will likely have to wind back past rate hikes which could drive a downturn through H2. Our attentions remain with US inflation data as the key driver leading into the weekly close.

Key Movers

The US dollar found support through trade on Tuesday, bouncing off a key technical support line as investors square positions leading into Thursday’s all-important CPI inflation update. With the DXY index breaking supports at 103.45, new support has formed on moves approaching 103, however with broader momentum still favouring risk assets and commodity linked currencies a downside miss against inflation expectations could amplify calls for a correction in the pace of rate hikes and drive further near term USD weakness. The euro marked fresh seven month highs, before meeting resistance on moves above 1.0750. This remains a key psychological barrier for the euro with a break above this handle and toward 1.0790 likely to falter in the absence of a clear catalyst. The GBP has slipped back below 1.22 finding support on moves approaching 1.2110. Any break outside current ranges will be contingent on US inflation data, the key marker driving direction into the weekly close.

Expected Ranges

  • NZD/USD: 0.6320 - 0.6420 ▼
  • NZD/EUR: 0.5880 - 0.5980 ▼
  • GBP/NZD: 1.8980 - 1.9220 ▼
  • NZD/AUD: 0.9180 - 0.9320 ▲
  • NZD/CAD: 0.8480 - 0.8620 ▲