NZD steady despite robust overnight price action
Thursday 14 July, 2022
Daily Currency UpdateThe New Zealand dollar opens in much the same position as it did Wednesday despite a wild and eventful overnight trading session. The NZD tracked sideways through local trade bouncing between US$0.6100 and US0.6130 as markets pared positions leading into the much-anticipated RBNZ monetary policy and US CPI updates. As anticipated the RBNZ raised rates by a further 50 basis points, lifting the OCR to 2.5%, while suggesting the current path to normalisation remains appropriate. The NZD showed little reaction despite a dip in wholesale 2- and 10-year rates as markets continue to price a more aggressive monetary policy approach. With a key risk event behind us, the market focus shifted to US inflation data. US price pressures surged in June advancing 1.3%, propelling the annual inflation rate above 9%, a forty-year high. With little sign inflation pressures are easing markets rushed to price in further Fed rate hikes, moving to price a 100-point hike when the FOMC meets later this month. The NZD plunged in the wake of the print, falling off intraday highs at US$0.6160 to touch session lows at US%0.6090 before recovering losses amid weaker USD demand. Fears the sustained inflation pressures and rapidly rising interest rates will mean a front-loaded tightening cycle with rates to ease in the longer term forced investors to correct USD gains amid a flattening yield curve and signals of recession ahead.
While under pressure the NZD appears relatively well supported on moves approaching US$0.61/0.6080. With little of note on today’s ticket broader global headwinds and US Produce inflation measures will provide direction leading into key US retail sales data and a consumer sentiment review Friday.
Key MoversThere was ample price action and volatility across major currencies to digest through trade on Wednesday as an eventful overnight session saw the Euro test a break below parity and the CAD lurch higher. Having tracked sideways early the USD surged following a robust and unexpected jump in inflation pressures. Headline CPI data showed prices rose 1.3% in June, lifting the annualised rate of inflation to 9.1%, a forty-year high. While most anticipated rising gasoline and food prices would drive sustained price growth a closer look at core inflation measures afforded markets a rude shock. Core inflation lurched 0.7% while alternative measures of inflation showed signs price pressures are actually accelerating. The strong print forced markets to adjust expectations for Fed policy pricing in a 100 basis point hike this month and a 75-point adjustment in September. As markets rush to front-load interest rate expectations a flattening in the yield curve and emerging signals of recession ahead prompted a USD correction. Having forced the euro below parity, the dollar reversed course allowing the single currency to recover back above US$1.0050.
In other news, the Canadian dollar surged through US$0.77 following the Bank of Canada’s surprise 100 basis point rate adjustment. Markets had priced in an aggressive 75 basis point move and the 100-point move forced investors to adjust positions and expectations for future policy change. The Bank of Canada adjustment is clear evidence Central banks are front loading the tightening cycle in a bid to control inflation outcomes through 2023 and avoid even higher interest rates in the future.
- NZD/USD: 0.6080 - 0.6220 ▲
- NZD/EUR: 0.6050 - 0.6130 ▼
- GBP/NZD: 1.9280 - 1.9520 ▼
- NZD/AUD: 0.9020 - 0.9090 ▼
- NZD/CAD: 0.7920 - 0.8020 ▼