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NZD fails to hold onto 0.70 in wake of stronger than expected US inflation data

Wednesday 14 July, 2021

Daily Currency Update

NZD - New Zealand DollarThe New Zealand dollar gapped lower overnight, failing to hang onto a domestic session push above 0.70 US cents. Having touched intraday highs at 0.7010 the NZD fell to a session low 0.6920 after US CPI data again surprised to the upside. A much higher than anticipated US CPI data print prompted analysts to bring forward expectations for a Federal Reserve rate hike and spurred a broad-based US dollar appreciation. Core inflation jumped nearly 1%, taking year-on-year gains to 4.5%, the fastest pace of appreciation in almost 30 years. The data was skewed by a surge in prices across the used car sales market as supply constraints continue to disrupt the availability of semiconductors and the production of new vehicles. Used car prices jumped 10.5% in the month of June and added almost half a percent to the overall CPI increase. Given the lean toward used car sales in this month print, there is still a strong argument inflation pressures are being driven by supply side constraints and will prove transitory. That said, June marks the third month where CPI has surprised to the upside, suggesting transitory pressure may linger through the short term and force the Fed to bring forward its tapering plans.Our attentions turn now to the RBNZ monetary policy review. With investors already front running expectations for a rate hike in November, the review will need to offer an incredibly hawkish assessment if it is to spur a dramatic NZD appreciation. Overnight, our focus shifts to comments from Jerome Powell as he testifies in front of Congress tonight. Given the uptick in price pressures, we are looking for guidance as to the timing of amendments to the current tapering program.

Key Movers

The US dollar enjoyed a broad based uptick on the back of a stronger than expected increase in headline and core inflation. CPI data showed price pressures increased again in June, fuelling calls suggesting the uptick over the last three months is no longer transitory. Supply side constraints continue to plague a number of key industries, but with little sign those constraints will ease in the near term as the Pandemic continues to disrupt the global supply chain, we expect inflation pressures will continue to linger through the short-medium term. The Bloomberg dollar index pushed back toward 3-month highs as the euro fell below 1.18 and the GBP tested a break below 1.38. Attentions today turn to Fed Chair Jerome Powell and any clue regarding Fed policy changes, while the Bank of Canada is expected to further taper its bond buying program when it meets tonight. Markets have priced in a BoC rate hike in Q2 next year, and the reduction in bond purchases is the first step toward interest rate adjustments. Should policymakers surprise markets and maintain the current pace of purchase, the CAD may come under pressure as market are forced to re-price interest rate expectations.

Expected Ranges

  • NZD/USD: 0.6920 - 0.7020 ▼
  • NZD/EUR: 0.5840 - 0.5920 ▲
  • GBP/NZD: 1.9780 - 1.9950 ▲
  • NZD/AUD: 0.9280 - 0.9350 ▼
  • NZD/CAD: 0.8650 - 0.8750 ▼