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Kiwi pummeled in wake of Fed policy update

Thursday 17 June, 2021

Daily Currency Update

NZD - New Zealand DollarThe New Zealand dollar fell sharply overnight, hammered in the aftermath of the Fed’s policy update and quarterly monetary policy forecast. Having tracked sideways in the lead up the NZD fell through 0.71 to mark intraday and two and a half month lows at 0.7047. The FOMC dot plot suggested policymakers now believe at least two rate hikes will be appropriate in 2023, bringing forward estimates having signalled there would be no rate adjustment until 2024 in March. The market had priced in a single rate hike in Q2 of 2023 so the projection of 2 hikes surprised investors and prompted a rapid correction of bond yields and asset expectations. Having broken supports at 0.71 US cents, the NZD is now firmly entrenched within a near term downtrend having shifted off highs at 0.73151 in the three weeks to May 27th. Our attentions turn now to domestic Q1 GDP data, with median estimates suggesting a half percent increase in economic activity quarter on quarter. We anticipate the print will fall between 0.5 and 0.8% with a miss to the downside compounding the overnight move and opening the door for a deeper correction. We anticipate investors will maintain a cautious tone and favour haven assets as market prices correct to the changing monetary policy expectations.

Key Movers

The US dollar index enjoyed its biggest single-day rally in 9 months following the sharp increase in US 10-year treasury yields and market reaction to the FOMC policy announcement. While the Fed opted to maintain its current policy settings, its quarterly forecast showed Fed officials brought forward their expectations for a rate adjustment, surprising markets and prompting a risk-off move. Bond yields spikes with the 10-year treasury rate climbing off 1.5% to 1.57% while break-even inflation rates climbed 5 basis points and over 2.3%. Both the euro and pound gave up ground with the euro slipping toward a six-week low and the pound falling below 1.40. The Japanese yen out-performed in the risk-off environment as did the Swiss franc, but neither currency was able to keep pace with the USD as the world’s base currency pushed its haven counterparts to lows not seen since April. Our attentions remain with the current narrative and ongoing correction in market pricing and monetary policy expectations.

Expected Ranges

  • NZD/USD: 0.7020 - 0.7180 ▼
  • NZD/EUR: 0.5850 - 0.5920 ▲
  • GBP/NZD: 1.9610 - 1.9980 ▲
  • NZD/AUD: 0.9240 - 0.9290 ▼
  • NZD/CAD: 0.8640 - 0.8720 ▼