NZD range bound ahead of key inflation update
Thursday 20 April, 2023
Daily Currency UpdateThe New Zealand dollar maintained a narrow range through the trade on Wednesday, tracking between US$0.6175 and $US0.6225. Price action across major currencies has been largely subdued this week and the NZD remains comfortably contained within a broader 2-cent range. The Kiwi has struggled to make headway on forays approaching US$0.6350, yet remains well supported on downturns nearing US$.6150. With near-term inflation pressures and monetary policy expectations slowly making way for longer-run fears of economic downturn and recession, it appears investors are content in managing positions until a clear shift in narrative emerges.
Our attentions turn to this morning’s local CPI update. The quarterly print will be invaluable in pricing near-term RBNZ rate expectations. While we anticipate headline and core inflation numbers will come in below RBNZ estimates they are still going to be well above target and too high for comfort. Anything short of a shock evaporation inflation pressures all but guarantees the RBNZ will hike rates by another 25 points next month. Ordinarily, we’d expect this to be NZD supportive but with the domestic economy already mired in mediocrity, the pressure of further interest rate hikes on economic performance could very well act as a drag on the NZD as the broader narrative shifts away from inflation and towards a recovery.
Key MoversPrice action across majors was largely muted on Wednesday with net movements well contained. The GBP enjoyed a 100-point range, swinging back and forth as investors responded to a higher-than-anticipated CPI print. UK inflation remains above 10% year on year, defying expectations of a move back toward single digits. Food prices and energy costs contributed to the stubbornly sticky headline print as the cost of groceries reached new highs, up 19.1%. Sticky price pressures all but guarantee tighter Bank of England Monetary Policy through the near-term, adding some yield support to the GBP. Having touched intraday highs at 1.2470, the GBP retreated into this morning's open, sliding back below 1.2450.
The CAD was the weakest major unit overnight, down half a percent following a sharp contraction in oil prices, while the JPY continues to face headwinds amid a backdrop of higher global rates and widening central bank policy expectations. Hopes the Bank of Japan may tweak or do away with its yield curve control program and next month's meeting have been dashed following Bloomberg reporting that suggests officials remain wary of moving too soon, a fear exacerbated by last month's US banking crisis. With the BoJ’s penchant for easy monetary policy, the JPY will continue to face near-term headwinds.
Our attentions today turn to commentary from Fed officials ahead of a stacked Service and Manufacturing PMI update Friday.
- NZD/USD: 0.6130 - 0.6250 ▼
- NZD/EUR: 0.5840 - 0.5720 ▲
- GBP/NZD: 1.9880 - 2.0120 ▲
- NZD/AUD: 0.9180 - 0.9280 ▲
- NZD/CAD: 0.8280 - 0.8380 ▲