Home Daily Commentaries China Stimulus props up NZD as eyes turn to Fed policy meeting

China Stimulus props up NZD as eyes turn to Fed policy meeting

Daily Currency Update

The New Zealand Dollar edged upward through trade on Tuesday, pushing back above US$0.62 amid improved sentiment on China. News from the Chinese Politburo affirming a commitment to boost consumption and restore confidence in the property sector helped prop up Chinese assets, while another strong reference rate setting helped foster a CNY rebound against the USD. USD/CNH gave up nearly three-quarters of a percent slipping below ¥7.14. With key commodities finding support the NZD piggybacked higher marking intraday highs at US$0.6230.
With sentiment improved our attention turned to the Fed and the Federal Open Market Committee's policy meeting. We anticipate a 25-basis point hike will be issued and our focus turns to guidance on future rate adjustments. With Markets pricing, and just a 50% chance of a follow-up hike by November, language and direction will be key in guiding near-term direction. We expect the Federal Open Market Committee will maintain its strong rhetoric and push the possibility of future rate hikes for fear of unwinding gains made on inflation to date.

Key Movers

Price action across majors was modest through trade on Tuesday as investors appear content in sidelining major bets ahead of key Fed, European Central Bank (ECB) and Bank of Japan policy updates. That said the USD found support in a stronger-than-expected Consumer confidence date, with conditions suggesting the economy remains resilient, despite the aggressive tightening cycle of the last 12 months. In contrast, the euro came under pressure amid signs ECB policy action is gaining traction. After Monday’s softening in service activity, leading bank surveys suggest demand for loans has softened as higher funding costs begin to bite. The euro slipped below US$1.1050 overnight, down 0.3% against the USD.

Our attentions turn now to the Fed and Federal Open Market Committee policy update. With the labour market and broader economy showing sustained resilience we expect the Fed will look to maintain its current policy path. A 25-point hike is fully priced in and forward guidance will prove key in shaping direction as the market begins to prepare for a peak in Fed funding. Analysts are divided as to whether policy makers will lift rates again after tomorrow elevating the importance of policy counsel. With plenty to sink our teeth into through the coming 48 hours, we see ample scope for volatility across the major block.

Expected Ranges

  • NZD/USD: 0.6080 - 0.6300 ▲
  • NZD/EUR: 0.5550 - 0.5700 ▲
  • GBP/NZD: 2.0480 - 2.0820 ▲
  • NZD/AUD: 0.9100 - 0.9220 ▼
  • NZD/CAD: 0.8120 - 0.8250 ▲