Home Daily Commentaries NZD tests break back above US$0.59 as markets price an end to US rate hikes

NZD tests break back above US$0.59 as markets price an end to US rate hikes

Daily Currency Update

The New Zealand dollar extended its post FOMC gain through trade on Thursday, punching through US$0.59 for the first time since a softer than anticipated inflation read mid-October. With the Fed electing to leave rates on hold markets and investors are confident the period of aggressive interest rate hikes is over and that further monetary policy adjustments will be smaller and at the edges. With equities rallying and treasury yields falling the NZD extended toward intraday highs at US$0.5915, before edging back toward US$0.5880/90 into this morning’s open. Our attentions turn now to US non-farm payroll data for October as well as the latest service sector ISM report. We expect payrolls data will show 180,000 jobs were added to the economy, while the unemployment rate should remain steady. A robust read could elevate calls for the Fed to raise rates once more, while a softer read will underpin the narrative that rate hikes have gone far enough and potentially help extend the NZD rebound. With Chinese service sector PMI data adding more colour to the macro ticket there is plenty of scope for volatility into the weekly close.

Key Movers

The US dollar fell through trade on Thursday, extending its post FOMC downturn as long dated US treasury yields retreated and markets pare back expectations for future Fed interest rate hikes. The DXY dollar index fell 0.5%, before finding some support on improved front-end yield prices. The Great British pound enjoyed modest uptick after the BoE elected to leave rates on hold, but hinted future rate hikes were not off the table. Policy makers expect the policy setting to remain restrictive for some time as they battle to control inflation that remains stubbornly above target. While many have already priced in a peak fund rate there is still scope for 10 basis points of further tightening leading into Q1 next year. The GBP advanced nearly 1% up through 1.22, while the euro punched back above 1.06 and briefly tested a break above 1.0650. With reports the Bank of Japan is going to continue winding back its rigid monetary policy controls, the yen advanced 0.5% briefly pushing the USD back below 150 before supports kicked in.

Our attentions turn now to US non-farm payroll data. A robust read could well force investors to unwind the post FOMC sell off as the likelihood of another Fed rate hike increase, while a soft read will underpin the current narrative and could be the beginnings of the end of US exceptionalism.

Expected Ranges

  • NZD/USD: 0.5780 - 0.5950 ▲
  • NZD/EUR: 0.5500 - 0.5600 ▲
  • GBP/NZD: 2.0600 - 2.0800 ▼
  • NZD/AUD: 0.9120 - 0.9220 ▲
  • NZD/CAD: 0.8050 - 0.8150 ▼