Daily Currency Update
The New Zealand dollar edged lower through trade on Tuesday, slipping below US$0.6250 ahead of Key US inflation data. Having opened near US$0.6270 the NZD fell steadily through the day, sliding toward intraday lows south of US$0.6230. With little of note on the domestic ticket offshore drivers continue to control direction. A string of stronger than expected US macro data sets has investors wrestling with expectations surrounding the timing and trajectory of US monetary policy change. Through December analysts had brought forward expectations for a March rate hike allowing the NZD to mark fresh 5-month highs above US$0.6350. Investors have since been forced to correct expectations, paring hopes for a March rate hike and driving a USD recovery through the start of the year. Monetary policy direction and guidance will remain key in shaping direction through Q1 and our attentions turn to US inflation data Thursday as a critical marker for Fed decision makers.
Key Movers
The US dollar continued its strong start to 2024, advancing against the Euro, Yen and commodity currencies ahead of key inflation data. Thursday’s consumer price inflation report for December headlines the docket this week and will be pivotal in shaping near term Fed expectations and dollar direction. The USD index hit 5-month lows through December on the back of elevated calls for Fed officials to bring forward rate cuts to avoid a heavy downturn in economic activity. A rebound in macro data sets through early January has forced investors to reconsider USD shorts allowing the dollar to recoup losses and enjoy its strongest start to a calendar year since 2011. With the market still trying to find its feet in terms of the timing of Fed rate cuts inflation data takes on greater importance. If the data continues to show a moderation in inflation pressures expectations for a March rate cut should find support, while a stronger read likely forces investors to pare expectations and instead price for a cut nearer June adding more support to the USD. With the Euro trading below 1.0950 and Sterling slipping below 1.27 we look to commentary from Bank of England Governor Bailey for direction leading into Thursday’s inflation report.
Expected Ranges
- NZD/USD: 0.6200 - 0.6300 ▼
- NZD/EUR: 0.5650 - 0.5750 ▼
- GBP/NZD: 2.0100 - 2.0400 ▲
- NZD/AUD: 0.9230 - 0.9350 ▲
- NZD/CAD: 0.8300 - 0.8400 ▲