NZD falters as USD outpaces counterparts ahead of tomorrow’s Fed meeting
Tuesday 2 May, 2023
Daily Currency UpdateThe New Zealand dollar retreated through trade on Monday, giving up Friday’s gains, slinking back below US$0.6180, unable to keep pace with gains enjoyed across major commodity-led counterparts. With the USD broadly stronger the NZD struggled to gain traction through both the domestic and overnight sessions, faltering into rallies above US$0.6180/85.
It appears investors are content with managing positions ahead of key central bank risk events. With the RBA meeting today, Fed Wednesday and ECB Thursday, we anticipate modest price action as markets adjust rate expectations and forward guidance. With the AUD outperforming on the day, the NZD gave up AU$0.9350 steadily sliding back toward AU$0.93.
Our attention now turns to the RBA May policy update. After last week's softer-than-anticipated inflation print, we expect any hiking bias the RBA carried out of the April meeting has been dissolved and policymakers will leave rates unchanged.
With the market all but priced in a second consecutive monthly pause, there is scope for further downside should policymakers surprise investors. A decision in line with expectations will help elevate the NZD’s yield advantage and help extend a run back above AU$0.9350.
Key MoversThe USD was largely stronger through trade on Monday with the DXY dollar index up 0.5% on the day, following wholesale losses for the euro, GBP and JPY. After outperforming in April, both the euro and GBP traded lower giving up 1.10 and 1.25 respectively. Stronger than anticipated US ISM manufacturing data helped fuel an uptick across US treasury yields.
The yield curve steepened with the 10-year rate jumping to 3.57% as markets look to price in another 25 basis point Fed rate hike. With treasury yields rising and global rates rallying, the Japanese yen underperformed. The worst performed on the day, the yen gave up eight-tenths of a per cent compounding Friday’s 1.7% sell-off as fall out from the Bank of Japan’s April policy update and commitment to ultra-easy monetary policy continues.
The USD surged through 137 to mark intraday highs just north of 137.50, its highest level in nearly two months.
Our attention turns now to the RBA policy meeting today ahead of the Fed policy update tomorrow. With Wall Street Journal Columnist and Fed Whisperer Nick Timiraos indicating the Fed is on track to lift rates b 25 basis boings and deliberate the merits of pausing future rate adjustments, we are keenly attuned to the post-meeting statement and commentary from Fed Chair Jerome Powell in guiding near-term direction.
- NZD/USD: 0.6080 - 0.6230 ▼
- NZD/EUR: 0.5580 - 0.5680 ▲
- GBP/NZD: 1.9980 - 2.0380 ▼
- NZD/AUD: 0.9250 - 0.9350 ▼
- NZD/CAD: 0.8320 - 0.8420 ▼