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NZD unable to extend gains in face of hawkish US FOMC

Thursday 6 January, 2022

Daily Currency Update

The New Zealand dollar opens marginally lower this morning having failed to consolidate a break above 0.68 US cents. Having tracked sideways through the domestic session, the NZD marked intraday highs at 0.6835 through the middle of the overnight session before a sharp correction following the Fed’s FOMC meeting minutes.  While offering few surprises, the minutes maintained the Fed’s recent hawkish bent, fueling USD gains and forcing the NZD back below 0.68 and toward intraday lows at 0.6790. As markets continue to ignore the latest surge in COVID-19 case numbers, instead betting Omicron will have a reduced impact on the global economic recovery, our attentions turn to key macroeconomic indicators. US non-farm payroll data on Friday and US CPI numbers next Wednesday will provide invaluable insight into the status of the US economic recovery and further shape interest rate expectations leading through Q1 and 2022.

Key Movers

The US dollar index fell through trade on Wednesday before paring losses in the wake of the Fed’s December meeting minutes. Having given up ground across the board, the USD rallied into the daily close, buoyed by expectations the Fed may move faster than previously anticipated. The latest FOMC minutes, while offering few surprises; affirmed the Fed’s hawkish bent and pushed up expectations of a March interest rate hike. Almost 80% of the market now anticipates rates will be lifted leading into Q2, prompting an uptick across US treasury yields and a downturn across risk assets. Having tested a break above 1.36, the GBP has shifted back toward 1.3550 while the EUR gave up 1.1340 and sits only marginally above 1.13 at the time of writing. Central Bank policy guidance and change will continue to drive direction through Q1 for as long as markets are prepared to set aside concerns surrounding the latest spike in COVID-19 numbers and the Pandemic’s ongoing evolution.

Expected Ranges

  • NZD/USD: 0.6730 - 0.6850 ▼
  • NZD/EUR: 0.5980 - 0.6050 ▼
  • GBP/NZD: 1.9780 - 1.9990 ▲
  • NZD/AUD: 0.9380 - 0.9450 ▼
  • NZD/CAD: 0.8620 - 0.8720 ▲