Kiwi falters as markets pare rate hike expectations
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Daily Currency Update
The New Zealand dollar retreated through trade on Monday as markets pare bets for an RBNZ rate hike. The NZD was unable to extend gains won last week in the wake of a robust labour market update and the ANZ’s shift in guidance and call for two more RBNZ rate increases.Having climbed near 2% last week, the NZD moved lower as markets moved off bets for a full rate hike with pricing falling to 65%, while the likelihood of an adjustment later this month came off a 50/50 bet and there is now just a 35% chance the RBNZ lifts rates in March.
The NZD is lower against the USD and most major crosses, giving up ground against the AUD, GBP and euro. Our attention now turns to RBNZ inflation expectations and US CPI data as key markers for guidance through trade on Tuesday.
Key Movers
Price action across majors was muted through trade on Monday as Asian markets were closed in observance of the Lunar New Year, while US and European markets offered little in the way of headline newsflow and Tier 1 data.US equity markets edged higher, while treasuries maintained a narrow range and the USD is marginally higher trading above 104.10. Markets appeared content in managing positions ahead of tonight’s all-important US CPI update. We expect a small month-on-month increase of 0.3% and a year-on-year decline to 3.7%, one step closer to the Fed target at 2%.
A print in line or above expectations affords the FOMC scope to maintain the current setting and their patient approach to rate cuts all but eliminating the possibility of a March adjustment, while a miss to the downside will ensure there is still momentum behind calls for an imminent cut.
With implied monetary policy expectations key in controlling direction, tonight’s print will help shape direction through the week, while UK labour market and wages data will help drive Bank of England and UK rate action.
Expected Ranges
- NZD/USD: 0.6080 - 0.6180 ▼
- NZD/EUR: 0.5650 - 0.5750 ▼
- GBP/NZD: 2.0400 - 2.0700 ▲
- NZD/AUD: 0.9330 - 0.9430 ▼
- NZD/CAD: 0.8200 - 0.8300 ▼