Home Daily Commentaries Kiwi can’t hold recovery despite softer US inflation outlook

Kiwi can’t hold recovery despite softer US inflation outlook

Daily Currency Update

The New Zealand dollar opens this morning marginally higher than this time yesterday, unable to sustain gains won following a softer than expected US inflation print. US CPI data for June showed inflation weakened more than markets expected, firming bets the Fed will soon commence its easing cycle. With a 25-basis point rate cut now fully priced in for September the USD gave up ground to all majors, allowing the NZD to mark session highs just above US$0.6131. It was however unable to sustain the rally as the USD clawed back losses leading into the daily close, forcing the NZD back below US$0.61 and toward US$0.6080/90.

The NZD has been on the back foot since the RBNZ’s dovish statement on Wednesday and while the softer US inflation outlook helped recover recent losses against the USD, it continues to underperform against other majors. Notably NZD/AUD now sits near the two year low, while intervention from Bank Of Japan officials forced a sharp correction in NZD/JPY and a break back toward 97.

With little of note on today’s domestic ticket our attentions turn now to US PPI data and consumer sentiment numbers for direction into the weekly close.

Key Movers

All in, the net result from the latest US CPI inflation report is somewhat disappointing with major currencies in much the same position as this time yesterday. US CPI inflation for June undershot market expectations, helping drive a depreciation in the annual rate of inflation to its lowest level in more than three years, extending the disinflation narrative. The weak print helped firm bets the Fed will commence an easing cycle, with a 25-basis point rate cut in September. With lower rates expected into year end, treasury yields rallied and the 2- and 10-year rates gave up 12 and 9 basis points respectively. With Fed easing now firmly in sight, the USD weakened in the moments immediately following the data release, giving up ground across the board, before setting about clawing back losses. The euro fell just short of a break above 1.09 and opens this morning back near 1.0870, while the GBP eyed a break above 1.2950 on the heels of a stronger than expected GDP update, before edging back below 1.29. With the AUD, NZD and CAD all relinquishing post CPI gains, the Japanese yen is the only major to hold gains through the daily close. With the USD on the back foot following the softer inflation read, Ministry of Finance and Bank of Japan officials seized the opportunity to step in and defend the embattled yen. The USD/JPY tumbled more than 2%, marking session lows at 157.50, before settling near 159.

Our attentions turn now to US PPI data and consumer sentiment analysis. With the disinflation narrative firmly in play, we are keenly attuned to the PPI report and what it might mean/indicate for the PCE index measure (the Fed’s preferred inflation metric) later this month.

Expected Ranges

  • NZD/USD: 0.6050 - 0.6150 ▲
  • NZD/EUR: 0.5580 - 0.5650 ▼
  • GBP/NZD: 2.1000 - 2.1300 ▲
  • NZD/AUD: 0.8980 - 0.9080 ▲
  • NZD/CAD: 0.8250 - 0.8350 ▲

Written by

Matt Richardson

OFXpert

As a Senior Corporate Client Manager, Matt provides expertise in currency risk management to his clients, drawing from his 14 years of experience in foreign exchange. Matt has clients who he has been working with for over a decade, a testament to his knowledge and dedication in the field. Matt is also a regular contributor on Ausbiz, offering clear and precise updates on currency market trends, showcasing his ability to interpret complex financial data into actionable insights.