Home Daily Commentaries NZD maintains narrow range as all eyes turn to US Inflation update

NZD maintains narrow range as all eyes turn to US Inflation update

Daily Currency Update

The New Zealand dollar maintained a narrow trading range through Tuesday, tracking between 0.6270 and 0.63 US cents. With little of note on the domestic macroeconomic ticket and a distinct absence of headline news flow markets appears content in squaring positions ahead of tonight’s all-important US CPI inflation update. US treasury yields climbed through the overnight session and it is evident markets are nervous. With headline inflation expected to decline and core price pressures expected to remain stubbornly high markets are keenly attuned to any surprise that tips the table in favour of market doves or hawks. A surprise to the upside allows the Fed to continue raising rates at pace, prompting markets to push back expectations for a more measured approach to monetary policy adjustments while a clear signal price pressures are easing could allow the Fed to ease back on the accelerator potentially opening the door to a broader USD downturn and an NZD move beyond 0.63/0.6350 US cents.

In other news a decline in Australian consumer confidence helped the NZD recover recent losses against its antipodean counterpart, extending back above 0.90. The NZD remains range bound against the AUD tracking between 0.8980 and 0.9080.

Key Movers

There was little price action across major currencies through trade on Tuesday as markets square positions ahead of a critical US inflation update. US treasury yields rose with 2 Year rates up 7 basis points and 10-year rates up 4 while the spread between 2 and 10 year yields moved deeper into negative territory. The inversion in the yield and widening gap between near and long run rates through the last 10 days is a clear signal markets anticipate economic recession. Tonight’s CPI inflation print will prove critical in governing the Fed’s medium-term monetary policy response. Another surprise uptick will force policymakers to continue raising rates at pace, killing economic activity and hastening the run toward recession, while an easing in price pressures will allow the Fed scope to moderate the pace of future rate hikes and potential nurse the economy toward a softer landing and shallower/shorter recession. With market nerves elevated we expect ample volatility in the wake of the data release as our attention then shifts to Key FOMC policymakers Charles Evans and Neel Kashkari for an immediate response on how inflation conditions will impact Fed decision making.

Expected Ranges

  • NZD/USD: 0.6180 - 0.6380 ▼
  • NZD/EUR: 0.6080 - 0.180 ▼
  • GBP/NZD: 1.9080 - 1.9320 ▲
  • NZD/AUD: 0.8980 - 0.9050 ▲
  • NZD/CAD: 0.8050 - 0.8130 ▲