Home Daily Commentaries NZD whipsaws in response to US CPI

NZD whipsaws in response to US CPI

Daily Currency Update

The New Zealand dollar sits back near the lower end of recent ranges as the respite in risk aversion failed to extend into the overnight session. The NZD edged back through 0.6350 US cents during the Asian session amid evidence COVID-19 case numbers in China were declining. Reports Shanghai has largely controlled its latest outbreak and with case numbers still low in Beijing there are hopes lockdowns will be lifted in the near term. That said, China is unlikely to pivot away from a COVID-zero strategy with research showing that under-vaccination and a lower level of protection from the Omicron variant would mean an extreme fatality rate if the government was to abandon its current strategy. As such, persistent lockdowns will continue to weigh on the Chinese economy and global supply chains well in H2. Having touched highs at US$0.6380 the NZD then whipsawed through the overnight session as markets responded to US CPI data. A surprise to the upside was a blow to those hoping for a deceleration of inflation pressures and prompted an immediate jump in rates. The NZD crashed through US$0.6300 before jumping back to intraday highs at US$0.6380 and then steadily falling back toward lows at 0.63 US cents.

Our attentions turn now to pre-budget reports and RBNZ inflation expectations. With the NZD largely driven by global forces and markets already looking to extend cash rate estimates, we expect today’s domestic data will have little impact. Instead, the global risk narrative and US rate expectations will continue to heap pressure on the NZD and possibly prompt a test of support consolidating near US$0.6280

Key Movers

Price action across currency markets mirrored key equity indices, whipsawing in response to US CPI inflation data. The all-important print was expected to show a decline in deadline inflation pressures and a modest slow down in the pace of increase across core goods. While headline data did fall, the decline was less than expected and driven mainly by favourable base effects, that is the removal of large increases in 2021 from the annual calculation. Price pressures remain shockingly elevated, dousing hopes for a rapid descent in inflation. With markets driving rates higher across the yield curve, the US dollar extended its recent upside forcing the euro toward supports at US$1.05 and the pound below US$1.23. The GBP fell over half a percent to touch lows below US$1.2250 as Brexit headlines return. Reports Prime Minister Boris Johnson's plans to tear up trade arrangements surrounding the Northern Ireland Border have elevated fears the UK and EU are set for another protracted negotiation process. Should Johnson and the UK walk away from the current plan the EU will likely revoke all UK trade benefits, heaping more pressure on an already embattled UK economy.

Our focus tonight turns to UK GDP data and US PPI inflation data.

Expected Ranges

  • NZD/USD: 0.6250 - 0.6380 ▼
  • NZD/EUR: 0.5950 - 0.6050 ▲
  • GBP/NZD: 1.9280 - 1.9620 ▼
  • NZD/AUD: 0.9040 - 0.9120 ▲
  • NZD/CAD: 0.8140 - 0.8240 ▼