Kiwi slips ahead of key US inflation update
Daily Currency Update
The New Zealand dollar edged marginally lower through trade on Wednesday as investors prepare for a critical US inflation update. With little of note on the domestic docket, the NZD tracked within a narrow 0.2% range, bouncing between US$0.6218 and US$0.6254. After the volatility that followed last week US Labour market and ISM data markets have largely been content in consolidating positions ahead of tonight’s all-important US December CPI report. The timing and trajectory of US rate cuts will prove critical in guiding NZD direction and the underlying inflation narrative is key in shaping Fed decision-making. If the number slips below market estimates and supports a faster rate cut cycle we can expect the NZD to find support and potentially consolidate a break above US$0.6250 and nearer US$0.63. However, a surprise miss to the upside likely sees the NZD slip and stay below support at US$.6220.Key Movers
Price action across majors was largely muted throughout Wednesday as markets pare big bets ahead of a critical US inflation update. The US dollar gained against the yen, yet dipped against the euro and GBP. Softer-than-expected local macroeconomic data in Japan dampened hopes the Bank of Japan (BoJ) will raise rates out of Negative territory later this month. Support for a BoJ monetary policy adjustment has been growing over the last 6 weeks as policymakers discuss a possible amendment to the current policy program. Some analysts had been pricing a rate hike as early as January helping add some support to the Yen but this week's softer data will likely ensure policymakers defer action until at least April. The Dollar pushed back above 145.50 JPY and is trading near 1.0970 against the Euro.Our attention turns now to the December US CPI inflation report. Traders are pricing in an easing in Fed policy through 2024, yet the timing and trajectory of rate cuts depend heavily on the inflation narrative. While we expect a small uptick in month-on-month headline inflation, annual inflation pressures should continue to ease, elevating potential calls for a March rate cut and weighing on the USD. In contrast, a surprise miss to the upside will afford the Fed scope to push back against market expectations, forcing analysts to delay expectations for a rate cut, likely until H2. With relative monetary policy a primary driver of short-term direction we expect volatility leading out of tonight’s inflation update.
Expected Ranges
- NZD/USD: 0.6150 - 0.6300 ▼
- NZD/EUR: 0.5630 - 0.5730 ▼
- GBP/NZD: 2.0250 - 2.0550 ▲
- NZD/AUD: 0.9250 - 0.9350 ▼
- NZD/CAD: 0.8280 - 0.8380 ▼