Daily Currency Update

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Kiwi range bound ahead of important inflation data

NZD - New Zealand Dollar

The New Zealand dollar drifted sideways through trade on Tuesday, unable to regain the momentum that saw it surge through 0.73 on Friday, amid concerns transitory inflation will feed into longer run price pressures. In the absence of headline data sets the NZD bounced between 0.7255 and 0.7290. Investors and analysts appeared content in sitting on the sidelines ahead of today's US consumer price index print. A strong read could fuel calls for the FOMC to end its blindness to rising near term inflation, dousing demand for risk assets and perhaps forcing the NZD back toward 0.7150 – 0.7230 handle. With little of note on the domestic docket, inflation concerns remain key in shaping near term direction. Easing fears could see the shackles constraining the reflation narrative unleashed and the NZD push toward year to date highs above 0.7450.

Key Movers

Price action across currency markets was largely muted through trade on Tuesday as investors grapple with near term inflation pressures and long-term expectations of economic recovery. The dollar, euro, yen and sterling offered little to incite excitement as markets appear content sitting on the sideline ahead of today’s all important US CPI print. Input costs have risen sharply in recent months as increased commodity prices and rising labour costs have prompted an uptick across PPI and PMI indicators. While not the Fed’s preferred measure of inflation, analysts will be keenly attuned to understand how rising input costs are impacting end consumer prices. The Fed and its brethren of core central banks have been steadfast in their commitment to maintaining accommodative policy, looking through near term price pressures. However, mounting inflation could drive hurried changes to monetary policy. Inflation concerns remain the key hurdle governing near term direction across currency markets. Sustained pressure will weigh on the reflation narrative, hampering gains across traditional risk assets.

Expected Ranges

NZD/USD: 0.7190 - 0.7315 ▲

NZD/EUR: 0.5920 - 0.5995 ▼

GBP/NZD: 1.9280 - 1.9520 ▲

NZD/AUD: 0.9220 - 0.9310 ▼

NZD/CAD: 0.8750 - 0.8830 ▲