Home Daily Commentaries NZD surges on heels of US inflation surprise

NZD surges on heels of US inflation surprise

Daily Currency Update

The New Zealand dollar surged higher through overnight trade on Wednesday, launching through 0.64 US cents following a softer than anticipated US inflation report. Risk appetite exploded upward as annual headline CPI fell from 9.1% to 8.5%, while core measures that exclude highly price-sensitive items such as food and energy remained steady at 5.9%. The softer than anticipated print forced markets to adjust near-term yield expectations driving lower 2- and 10-year rates. The USD collapsed under the weight of the yield correction tumbling 1.1% allowing the NZD to mark intraday highs above US$0.6430 before edging back toward US0.64/0.6405 leading into this morning’s open. As investors scrambled to adjust expectations for next months Fed policy update we see good NZD selling opportunity on the heels of the recent rally. The Fed has made clear it will need to see a sustained improvement in inflation trends and a single print won’t be enough to prompt a move away from their current path of policy adjustment. With NZD facing a myriad of other headwinds upside beyond US$0.6430 will still be hard won.

Our attentions turn now to local housing data with a slump in activity and downturn in prices already priced in. With the week's main risk event behind us and little else of note on the weekly ticket, our attentions turn to next week's RBNZ monetary policy update and the evolving risk narrative.

Key Movers

Having sidelined major bets in the lead into the all-important US CPI inflation update there was ample price action through the overnight session as investors rushed to respond to the softer than anticipated print. While analysts had anticipated moderation in headline price pressures, data surprised to the downside missing conservative estimates by 0.2%. The miss helped propel gains across the S&P 500 and Nasdaq while forcing the USD lower. The dollar's downturn drove gains across other majors as the euro shot through US$1.03 and the GBP looked set to eye a break above US$1.23. Is this the beginning of a broader market correction? While the correction in price pressures is a welcome relief to consumers and central bank officials, core measures of inflation remain well above target. The Fed has made it perfectly clear it needs to see a sustained improvement in inflation outcomes before it pivots away from its current program of monetary policy adjustment and while the door is open for a 50-point hike next month we anticipate the Fed will continue raising rates at pace through the near term. This latest update provides little insight into how quickly inflation pressures will ease. With the labour market stubbornly strong we expect the Fed will continue with a more aggressive approach, squashing inflation and then unwinding gains to drive a recovery out of recession in 2023.

Our attentions turn now to us PPI data and jobless claims, while we expect little impact they could help provide further colour as to labour market strength and the evolving inflation environment.

Expected Ranges

  • NZD/USD: 0.6230 - 0.6430 ▲
  • NZD/EUR: 0.6120 - 0.6250 ▲
  • GBP/NZD: 1.8980 - 1.9250 ▼
  • NZD/AUD: 0.8980 - 0.9080 ▲
  • NZD/CAD: 0.8090 - 0.8250 ▲