Home » Daily Commentaries » Kiwi outperforms as Fed fails to meet market rate hike expectations

Kiwi outperforms as Fed fails to meet market rate hike expectations

Thursday 4 November, 2021

Daily Currency Update

NZD - New Zealand Dollar

The New Zealand dollar opens higher this morning breaking back above 0.7130 and settling comfortably back between supports at this handle and resistance on moves approaching 0.7190/0.72. Having tracked sideways through the domestic session and the lead up to the Fed policy update, the NZD pushed higher as the USD fell after the FOMC offered few surprises and failed to be drawn into bringing forward its guidance on interest rate hikes. As expected, the Fed will begin reducing its asset purchase program later this month with a view to end QE supports in June next year. They were not however drawn into changing their inflation outlook and anticipate prices will normalise through Q2 and Q3 next year. The NZD has extended toward intraday highs at 0.7175, while enjoying gains against other key crosses, pushing back above 0.96 against the AUD, while testing 0.6180 against the euro and breaking toward 82 against the yen. Our attentions turn now to the Bank of England and their policy update.

Key Movers

The US dollar shifted lower overnight as the Fed’s program of asset purchase reductions was largely in line with market expectations and policy makers refused to be drawn into bringing forward expectations for an interest rate hike. The FOMC remains committed to maintaining its transitory inflation outlook, although it did concede higher inflation will be prolonged and it doesn’t expect price pressures to normalise until the middle of next year. Fed President Jerome Powell suggested the Fed is prepared to be patient in assessing economic conditions and price pressures. With the USD under pressure the euro has pushed back above 1.16, while sterling has extended toward 1.37. Our attentions turn now to the Bank of England policy update. The market appears split on whether the MPC will opt to raise interest rates by 15 basis points to 0.25% in a bid to combat stubborn and persistent inflation pressures. The out of cycle hike could add pressure to the GBP, as markets see it as a potential drag on the broader economic recovery.

Expected Ranges

  • NZD/USD: 0.7110 - 0.7220 ▲
  • NZD/EUR: 0.6110 - 0.6190 ▲
  • GBP/NZD: 1.8980 - 1.9280 ▲
  • NZD/AUD: 0.9570 - 0.9650 ▲
  • NZD/CAD: 0.8830 - 0.8920 ▲