NZD launched through $0.60 following softer US inflation print
Friday 11 November, 2022
Daily Currency UpdateThe New Zealand dollar lurched upward through trade on Thursday, buoyed by a weaker-than-anticipated US CPI inflation print. A softer-than-expected core inflation read has driven a swift and sharp correction across US rates and Fed monetary policy expectations as investors rushed to pare back bets on future Federal Open Market Committee rate hikes. Having tracked sideways through much of the local session and the lead into the all-important inflation update, the NZD exploded upward, launching off lows below US$0.5850 to touch 9-week highs above US$0.60. The question now is, can we sustain gains? The scale of the overnight move emphasises where short positions were concentrated and suggest a further depreciation in the broader USD outlook will support ongoing and outsized NZD upside. Up nearly 2% overnight, the NZD will now look to consolidate a break above US$0.60. Attentions now turn to domestic manufacturing PMI data and US consumer sentiment for direction into the weekly close.
Key MoversUS CPI inflation dominates direction overnight, driving the dollar lower and empowering a sharp uplift across key major counterparts. Despite a marginal uplift in headline inflation, the modest bump in core inflation pressures fell well short of market expectations, with alternative measures and input data suggesting a softening in price pressures. While we saw a further unwinding in the cost of goods elevated through the pandemic, a correction in service inflation helped ease fears rising costs were becoming more deeply entrenched in the broader economy. While leading measures of inflation have been pointing downward for some time, this is the first time we are seeing the easing in price pressures borne out in headline inflation data. The softening in inflation pressures gives the Fed scope to temper the pace of future rate hikes. The market is now increasingly confident policy makers will pare back interest rate hikes next month, issuing a 50 basis point hike, with a softening in labour market data potentially opening the door to the possibility of a more traditional 25-point adjustment. The Peak Fed Funds rate has plunged since last Wednesday’s Fed and Federal Open Market Committee policy, meeting below 5% to sit at 4.88% in Q2 next year. The scale of price action across currency markets has been aggressive, with those concentrated short positions the big winners. The correction in US rates has seen the JPY surge, with the USD down 3% and falling below ¥142, while the GBP enjoyed support up nearly 3%, while the euro consolidated a break above parity and extended back above € 1.01 and €1.02.
- NZD/USD: 0.5880 - 0.6050 ▲
- NZD/EUR: 0.5850 - 0.5950 ▲
- GBP/NZD: 1.9300 - 1.9500 ▲
- NZD/AUD: 0.9050 - 0.9150 ▼
- NZD/CAD: 0.7920 - 0.8080 ▲