Home Daily Commentaries New Zealand dollar continues to trade above US$0.61

New Zealand dollar continues to trade above US$0.61

Wednesday 23 November, 2022

Daily Currency Update

The New Zealand dollar is slightly stronger this morning when valued against the US dollar. Yesterday we saw a higher risk appetite sees a broadly weaker USD. The New Zealand dollar rallied over 0.3% overnight, extending earlier gains, with the NZD currently trading at US$0.6152. The other key majors have made modest gains, but the NZD is higher on all the key crosses since yesterday as the market positions itself for a hawkish Reserve Bank of New Zealand (RBNZ) policy update this afternoon. New Zealand could see an unprecedented 75 basis points hike in the official cash rate when the Reserve Bank considers its last shift for the year. Already at 3.5 per cent, up from 0.25 per cent in October last year. New Zealand lenders believe the 75 basis points rise for the cash rate (OCR) is not only possible on Wednesday but also likely. Annual headline inflation in NZ ratcheted up to 7.2 per cent in the September quarter, far above the central bank’s target range of 1 per cent to 3 per cent. Economists predict a higher terminal rate than previously thought.

Key Movers

Risk appetite was again higher overnight, with seemingly more weight on the Federal Reserve dialling down its hawkish policy stance than the current COVID outbreak in China. The Federal Reserve’s interest rate rise from 0.25% to 4% was remarkable, but not because the 3.75% increase was historically large or fast. Unlike in the past, interest rates had to climb out of a 0% basement. With that accomplished, we can now see 4% as the new ground level, where the interest rate rises, begins to bite. The US central bank is expected to shift to a 0.5 percentage points increase at its mid-December policy meeting, following a string of jumbo lifts, taking the Fed funds rate to a range of 4.25 per cent to 4.5 per cent. Financial markets indicate a peak of 5 per cent by May before receding to 4.6 per cent by the end of next year on speculation the Fed will have to ease policy as the economy slows. Wall Street rallied overnight as investors hope the powerful US Federal Reserve will back off its aggressive pace of monetary tightening. The Reserve Bank of New Zealand is expected on Wednesday to ramp up the speed of an already-aggressive policy tightening with a 0.75 percentage points lift. The futures market indicates the S&P/ ASX 200 will start 0.3 per cent firmer after the S&P 500 rose 0.5 per cent on Friday. The Dow Jones Industrial Average gained 0.6 per cent, and the Nasdaq Composite was unchanged.

Expected Ranges

  • NZD/USD: 0.6050 - 0.6250 ▼
  • NZD/EUR: 0.5850 - 0.6050 ▼
  • GBP/NZD: 1.9160 - 1.9350 ▲
  • NZD/AUD: 1.0700 - 1.0900 ▼
  • NZD/CAD: 0.8150 - 0.8350 ▼