NZD tumbles as Fed Chair points to sustained rate hikes
Wednesday 8 March, 2023
Daily Currency UpdateThe New Zealand dollar underperformed through trade on Tuesday, giving up 1.4% and marking fresh lows for 2023. Having maintained a relatively narrow trading handle for much of the domestic session and the early hours of overnight trade the NZD fell steeply following commentary from Fed Chair Jerome Powell. Powell surprised analysts and investors by adopting a distinctly hawkish tone when addressing lawmakers at a Senate Panel for Monetary policy. In testifying to the Fed's current policy plan Powell acknowledge recent macroeconomic indicators had been stronger than expected and while inflation has moderated there is still a long way to go before price pressures are back nearer the 2% target. While Powell offered nothing outside the commentary proffered by his fellow Fed policy makers the promise of tighter policy from the Fed President sparked an outsized market reaction. With markets now pricing in a 50-point hike later this month and peak fed Funds rate just short of 5% the NZD was forced off intraday highs above US$0.6210 toward the year-to-date lows of US$0.6104. Price action through the last 12 hours highlights just how dominant Fed monetary policy is in guiding near-term direction. With this in mind, we turn our attention to US ADP payroll data and Jolts job openings as precursors to Friday's all-important Non-Farm payroll print. After February's blockbuster read another strong showing could force the NZD below US$0.61 and open the door to a break back below US$0.60.
Key MoversThe pound was among the worst performer on Tuesday, second only to the AUD having given up over 1.5% and tumbled below US$1.1850 following commentary from key Bank of England officials. The Monetary Policy Committee's Mann, while traditionally a hawk and proponent of aggressive rate hikes, strayed from convention overnight suggesting the GBP would likely suffer sustained downward pressure when compared with key counterparts in the USD and euro, highlighting a widening gap in monetary policy expectations. While Mann continues to call for the Bank of England to keep pace with the European Central Bank and Federals reserve it appears her fellow committee members are content in maintaining a more measured approach to future rate hikes amid signs inflation pressures appear to have peaked. The GBP buy is US$1.1825 at the time of writing. In the wake of Jerome Powell's testimony the USD enjoyed a modest boost, reversing recent losses and extending gains, lifting the DXY index through 105.6, up 1.25% on the day. The USD was the strongest of the majors with the yen outperforming despite the higher rates backdrop. The risk-off mood that enveloped markets following Powell's commentary helped bolster demand for the yen while the euro gave up Monday's gains and tracked back toward US$1.0550. Our attentions turn now to the Bank of Canada for more central bank guidance. It is anticipated policy makers will pause the tightening cycle allowing past hikes time to filter through to the real economy. US ADP payroll data and Jolts Job opening headline the data ticket and should provide some insight into labour market performance ahead of Friday's all-important non-farm payroll print.
- NZD/USD: 0.6050 - 0.6250 ▼
- NZD/EUR: 0.5750 - 0.5830 ▼
- GBP/NZD: 1.9180 - 1.9480 ▼
- NZD/AUD: 0.9180 - 0.9320 ▲
- NZD/CAD: 0.8350 - 0.8520 ▲