Home Daily Commentaries NZD range bound ahead of key CPI update

NZD range bound ahead of key CPI update

Wednesday 25 January, 2023

Daily Currency Update

The New Zealand dollar offered little to excite investors through trade on Tuesday, maintaining a relatively narrow trading handle as investors looked to take stock of recent risk on gains and prepare positions ahead of today’s all-important domestic inflation update. Having tracked sideways through the domestic session, the NZD moved toward intraday lows at US$0.6465 before weaker than anticipated US service sector activity and adverse labour market data helped fuel a rebound back through US$0.65 and toward intraday highs at US$0.6520. Our attentions now turn to domestic inflation data. The Q4 CPI update will provide key insight into the latest inflation pressures. While recent data points to a contraction in price rises across headline items, the shift in the cost of core goods will be of greater focus for investors. An upside surprise will go a long way in shaping expectations for the February RBNZ policy meeting.

Key Movers

Price action across major currencies was mixed through trade on Tuesday as markets reacted to various macroeconomic data points and a shift in the global rates backdrop. US PMI data lifted off November lows but still failed to rebound above 50, indicating activity across service sectors continues to contract. With cracks appearing in what has previously been a relatively robust labour market, fears of stagflation and recession continue to rise. Reports US giant 3M will cut its labour force by 2,500 workers following a sharp slowdown in December added to data revealing a significant downturn in temporary work with nearly 120,000 part-time or temporary employees losing their jobs in the last 5 months. All signs point to an economy in the throws of a marked slowdown, if not recession, and while a correction in risk appetite helped the US garner early gains, markets unwound the move and the USD remains under pressure. In other news, the euro maintained a relatively narrow trading handle buoyed by a better-than-anticipated PMI print. Activity across Europe’s service sector expanded through December, marking 6 months highs and offering a sharp point of contrast to the US. Having touched intraday lows at US$1.0835, the euro tested US$1.09 before tracking sideways into the open. The pound was the day’s worst performer giving up over 100 points following a downturn in services activity. PMI data showed activity contracted at its fastest pace in over a year as reports emerge of growing problems plaguing the UK service sector and labour force. Having broken above US$1.24, the pound plunged through US$1.23 to mark intraday lows at US$1.2275 before finding support and limping back toward US$1.2320. Our attention focuses on the Bank of Canada today. While a 25-point rate hike is priced, the bank is nearing the end of its tightening cycle, and we anticipate some adjustments to forward guidance that could shape near-term CAD direction. Please note there will be no commentary tomorrow. We will return on Friday after the public holiday.

Expected Ranges

  • NZD/USD: 0.6420 - 0.6550 ▲
  • NZD/EUR: 0.5920 - 0.6020 ▲
  • GBP/NZD: 1.8820 - 1.9120 ▼
  • NZD/AUD: 0.9180 - 0.9320 ▼
  • NZD/CAD: 0.8620 - 0.8720 ▲