NZD buoyed by firming Fed rate cut expectations
Daily Currency Update
The New Zealand dollar outperformed through trade on Wednesday, buoyed by firming expectations a Federal Reserve rate cut is nigh. Having opened below US$0.59, the NZD tracked sideways through much of the domestic session before lurching upward to mark session highs just short of US$0.5940, up 0.8%. A softening in the Fed’s stance and signals it is focused on its dual mandate and not just inflation helped cement calls for an imminent policy change.While stronger against the USD the NZD slipped below 89 against the yen after the Bank of Japan elected to lift interest rates with the promise of more to follow. After touching record highs just short of 99 the NZD has plummeted against the yen over the last 3 weeks and looks set to test supports near 85/86.
Our attentions today again turn offshore with little of note on the domestic docket. The Bank of England policy meeting and US manufacturing data should provide ample material to drive extended volatility into Friday.
Key Movers
What a 24 hours! A deluge of key risk events drove action across majors through trade on Wednesday, headlined by the Federal Reserve Open Market Committee (FOMC) meeting and the Bank of Japan policy update. The Bank of Japan (BoJ) elected to raise rates by 15 basis points, lifting the underlying cash rate to 0.25% while laying out further plans to normalise its monetary policy platform and reduce bond purchase over the next 2 years. The yen lurched upward following the policy announcement, extending gains on comments from the BoJ Governor Ueda. Ueda said, that “we still have some distance to reach the neutral range”, suggesting additional rate hikes will follow. Japanese yields moved higher. In contrast, US treasuries fell after the Fed’s FOMC policy statement. Rates were unchanged but a shift in the tone elevated expectations for a rate cut in September. A softening in the Fed’s stance signals it is focused on its dual mandate and not just inflation helped cement calls for an imminent policy change. The USD is generally weaker, slipping below 150 against the yen while giving up 1.2850 to the GBP and allowing the euro to consolidate above 1.08.Our attentions turn now to the Bank of England policy meeting. The market is divided as to whether policymakers will cut rates by 25 basis points, while US manufacturing data could prove key in shaping US yield action.
Expected Ranges
- NZD/USD: 0.5880 - 0.6000 ▲
- NZD/EUR: 0.5450 - 0.5550 ▲
- GBP/NZD: 2.1500 - 2.1800 ▼
- NZD/AUD: 0.9020 - 0.9150 ▲
- NZD/CAD: 0.8150 - 0.8250 ▲