USD appreciation drives NZD lower near US$0.5650
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Daily Currency Update
Pressure lingers for NZDUSD for the third straight session, fuelled by hawkish expectations surrounding the US Federal Reserve’s policy outlook, and overall weakness propagated by a stronger US dollar (USD). Market participants, as indicated by the CME FedWatch tool, are increasingly confident the Fed will maintain interest rates between 4.25% and 4.50% in the upcoming three policy meetings. Additionally, inflationary pressures from US President Donald Trump’s policies could restrict the Fed to just one more rate cut in 2025, given his administration's stance on trade. Despite the introduction of new stimulus measures from New Zealand and China, the New Zealand dollar (NZD) struggled to gain traction on Thursday. New Zealand’s Prime Minister Christopher Luxon unveiled plans to ease foreign investment regulations to attract overseas capital. However, the NZD remained subdued, reflecting broader market caution.As we look ahead, traders will likely focus on the release of the preliminary US S&P Global Purchasing Managers Index (PMI) and the Michigan Consumer Sentiment Index for January, set for Friday. These reports are expected to provide key insights into the near-term economic outlook.
Note: There will be no commentary on Monday January 27 due to the public holiday in Australia.
Key Movers
The US dollar (USD) remains largely unchanged as Thursday’s US trading session approaches. President Trump is scheduled to speak at the World Economic Forum in Davos, which is drawing attention. The US Dollar Index (DXY) has risen back above the 108.00 mark but is experiencing some light selling pressure once again. The pound sterling (GBP) saw consolidation to the 1.2300 range off the back of the lack of clarity behind President Trump's tariff plans. Pound sterling investor's focus now shifts to the Bank of England’s first-rate decision of the year on February 7, with a 25-basis point rate reduction almost fully priced in. The euro saw similar treatment with US tariff uncertainties driving cautiousness both in market and the ECB, as President Lagarde confirmed Europe should be ready to respond to Trump’s tariff hikes. The Japanese yen (JPY) managed to contain its recent slide, trading around 156.50 amidst The Bank of Japan commencing its two-day policy meeting. The market is expecting the central bank to increase its policy rate to 0.5% on Friday, which would present the highest short-term borrowing costs in 16 years.Expected Ranges
- NZD/USD: 0.5645 - 0.5685 ▲
- NZD/EUR: 0.5430 - 0.5450 ▲
- GBP/NZD: 2.1700 - 2.1790 ▼
- NZD/AUD: 0.9020 - 0.9040 ▼
- NZD/CAD: 0.8130 - 0.8160 ▼