NZD falters ahead of RBNZ policy update
Wednesday 24 May, 2023
Daily Currency UpdateThe New Zealand dollar slumped back below $US0.6250 Tuesday, underperforming amid a weaker risk backdrop. Ongoing debt ceiling negotiations continue to hang over the market while renewed concerns surrounding China's post-COVID recovery dampened demand for equities and risk assets. Concerns about China's weak industrial production growth post-COVID have prompted a steep correction in industrial metals with copper leading the downturn slumping 11% through the last month. With the yuan sustaining further losses against the USD the NZD, a proxy among major currencies, suffered.
Our attentions turn now to the RBNZ and its latest policy update. With price action across the domestic rates market showing clear signs of nerves and wide-ranging expectations for peak RBNZ policy, we are keenly attuned to today's outcome. The market is well positioned for a 25-basis point correction, though another 50-point hike is not out of the question with peak projections now comfortable above the RBNZ February high of 5.5%. Much of the market is pricing in a peak OCR of 5.9%. With the NZD elevated against a number of major counterparts, near-term yield expectations will be crucial in maintaining upward momentum.
Key MoversThe USD was broadly stronger Tuesday as ongoing debt ceiling negotiations continue to hang over the market and dampen demand for risk. While President Biden noted talks were "productive" House Speaker McCarthy countered suggesting the two sides were "not anywhere close" to agreeing on a deal. Despite the variance in opinion, both sides appear confident a compromise can be reached by June 1st and the market it seems shares this optimism. Equities are lower and yields little changed on the day while the USD DXY index climbed 0.3% as the euro slid below US$1.08 and the pound poked its head below US$1.24 before finding support.
Our attention today turns to UK CPI data and the FOMC's meeting minutes. With consensus for UK inflation to show the beginnings of a steep decline in coming months tonight's print is crucial in governing Bank of England rate expectations and shaping near-term GBP value.
- NZD/USD: 0.6180 - 0.6320 ▼
- NZD/EUR: 0.5750 - 0.5850 ▼
- GBP/NZD: 1.9680 - 2.0020 ▲
- NZD/AUD: 0.9380 - 0.9520 ▼
- NZD/CAD: 0.8380 - 0.8520 ▼