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NZD remains under pressure amid rising US rate hike expectations

Friday 7 January, 2022

Daily Currency Update

The New Zealand dollar continued to track lower through trade on Thursday amid renewed demand for the USD on expectations the Fed will move to tighten monetary policy faster in a bid to control inflation. Having given up 0.68 US cents in the wake of Wednesday FOMC meeting minutes, the NZD slipped below 0.6750 marking intraday lows at 0.6734. Market attentions have shifted toward monetary policy expectations, as rising inflation concerns prompt investors to price in a more aggressive shift away from accommodative financial conditions. With markets now pricing a 70-80% chance the Fed will hike rates in March we look to Friday’s non-farm payroll data as the next key marker for direction. A robust print will likely drive analyst to firm expectations for a March rate hike and drive further USD upside through Q1. Watch supports at 0.67 and resistance on moves extending beyond 0.6830.

Key Movers

The US dollar advanced against its counterparts, except for the Canadian dollar and Japanese yen, through trade on Thursday, paring Wednesday’s early downturn and closing in on key technical supports. The Dollar Index extended its recovery back above 96 marking highs at 96.32 and eyeing a break toward 96.40. Investors are keenly attuned to resistance on moves approaching this handle, and a break above 96.40 could signal another upward run back toward the December high at 96.91. Near term momentum remains behind the USD as expectations for aggressive Fed policy action increase, drawing our attentions to two key data sets, today’s no- farm payroll print and Wednesday’s CPI inflation read. Leading indicators suggest the labour market continues to recover the impacts of the Delta variant, with analyst pricing in a robust uptick in jobs growth through December. A strong read should help drive USD upside into the weekly close and next week's inflation update. As highlighted in Wednesday’s minutes, controlling inflation is now a primary objective for the Fed and another high print will all but guarantee the FOMC will seek to tighten monetary policy faster than previously expected, shoring up bets for a March rate hike. Renewed USD strength pushed the EUR back below 1.13 while the GBP appears poised to again break below 1.35.

Expected Ranges

  • NZD/USD: 0.6690 - 0.6830 ▼
  • NZD/EUR: 0.5920 - 0.6020 ▼
  • GBP/NZD: 1.9920 - 2.0150 ▲
  • NZD/AUD: 0.9380 - 0.9450 ▲
  • NZD/CAD: 0.8550 - 0.8720 ▼