New Zealand Dollar tumbles as rate cut looms
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Daily Currency Update
The New Zealand dollar underperformed through Wednesday, crashing below US$0.61 following the RBNZ’s post-rate decision statement. The prospect of a rate hike was not discussed this time as weak activity and the pressures of existing monetary policy restraints were seen as sufficient for fighting persistent inflation. While we were expecting policymakers to leave rates on hold there was conjecture surrounding the tone the RBNZ would adopt. The dovish pivot was what markets have been seeking and allowed investors to firm bets on pricing in a rate cut before year-end. Markets are now preparing for a rate cut in November. The NZD tumbled to intraday lows at US$0.6070 as our attention now turns to US CPI data this evening. A softening in inflation pressures will help build momentum around the emerging disinflation narrative and could elevate calls for the Fed to cut rates sooner.Key Movers
Price action across majors was well defined through Wednesday with the euro, yen and AUD all tracking within a narrow range. While the NZD underperformed following the RBNZ policy update, the GBP outperformed following commentary from the Bank of England's chief economist, Huw Pill. Pill warned of continued inflationary pressures and noted a rate cut as soon as August was unlikely. While Pill acknowledged a cut was needed before year-end there remained upside risks to inflation forcing policymakers to consider the timing and trajectory of rate adjustments. Pricing for an August adjustment was pared back and the GBP lurched back above 1.28 falling short of a break above 1.2850.Our attention turns now to US inflation data and jobless claims. We expect core CPI to show a 0.2% increase month on month, adding to the improvement in annual inflation pressures and affording the Fed confidence that inflation remains on track. Jobless claims will also be in focus as labour market performance remains key to guiding policy.
Expected Ranges
- NZD/USD: 0.6000 - 0.6130 ▼
- NZD/EUR: 0.5580 - 0.5680 ▼
- GBP/NZD: 2.0950 - 2.1250 ▲
- NZD/AUD: 0.8980 - 0.9100 ▼
- NZD/CAD: 0.8220 - 0.8350 ▼