NZD tumbles to new lows as Fed hints at higher rates through 2025
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Daily Currency Update
The New Zealand dollar sell off continued through trade on Wednesday as the Kiwi tumbled in the wake of the Fed’s latest monetary policy announcement. The NZD was well contained leading into the Federal Open Market Committee’s (FOMC) final policy update for 2024, bouncing between US$0.5715 and US$0.5760. As expected, the Fed cut rates by 25 basis points but shifted its guidance for rate cuts through the short end of the yield curve. The Fed’s dot plot showed policymakers anticipate only needing to lower rates twice next year while increasing the long run neutral rate through 2025, 2026 and 2027. Markets were forced to adjust positions, driving the NZD through US$0.57, toward new lows just above US$0.5655. The NZD now sits only marginally above the October 2022 low, and is otherwise now at its lowest point since the early days of the pandemic. With the US economy proving remarkably resilient and the outlook for domestic growth, global trade and tariffs casting a pessimistic pall across the Asia Pacific, the outlook for the NZD through the first half of 2025 remains incredibly bearish.Our attentions now turn the Bank of England, Bank of Japan, Norwegian Norges Bank and the Swedish Riksbank as they all proffer their final monetary policy announcements for 2024.
Key Movers
The US dollar rose sharply on Wednesday following the Federal Reserve's final policy meeting for 2024. Policymakers lowered rates by 25 basis points as anticipated but adopted a hawkish tone when assessing the outlook for future cuts. Officials halved the number of anticipated cuts for 2025 and increased longer run neutral rate expectations through the next 3 years. With the US economy proving remarkably resilient and inflation tracking with target, US yields rose sharply, driving the USD DXY index 1% higher as major pairs collapsed. The AUD and NZD led the decline, with the EUR, GBP and yen not far behind. The euro gave up 1.3% plunging through 1.04 to mark new lows just above 1.0360 while the GBP dropped 1.15 sliding off 1.27 and 1.26 to hit session lows marginally above 1.2580.Our attentions turn now to the Bank of England and Bank of Japan policy meetings. We expect the Bank of Japan (BoJ) will leave rates on hold, despite data making a case for a hike. Recent commentary from BoJ officials suggest the bank has a preference to holding back rate hikes into 2025. We expect the BoJ will signal a hike in January, with rates climbing to 0.75% by the end of next year. The Bank of England (BoE) is expected to leave rates on hold at 4.75%, stronger wages and inflation data have forced a correction in rate cut expectations for 2025. We are keenly attuned to commentary and guidance from BoE officials.
Expected Ranges
- NZD/USD: 0.5580 - 0.5720 ▼
- NZD/EUR: 0.5400 - 0.5500 ▼
- GBP/NZD: 2.2000 - 2.2500 ▲
- NZD/AUD: 0.9020 - 0.9120 ▲
- NZD/CAD: 0.8120 - 0.8240 ▼