Home Daily Commentaries NZD struggles as all eyes turn to US inflation data Wednesday

NZD struggles as all eyes turn to US inflation data Wednesday

Daily Currency Update

The New Zealand dollar edged lower through trade on Monday as markets ramp up bets the US Federal Reserve will adopt an aggressive approach to monetary policy normalisation. The Kiwi tracked sideways for much of the domestic session bouncing between 0.6770 and 0.6785 before giving up 0.6750 and marking intraday lows at 0.6735 overnight. With little of note on the macroeconomic ticket central bank policy expectations continue to drive direction. Markets are now pricing an 80% probability the Fed will raise rates in March with additional rate hikes following in June, September and December. As investors largely ignore domestic monetary policy our attentions turn to US CPI data Wednesday as the key item driving the agenda this week. We expect the NZD will remain largely range bound with support on moves approaching 0.6730 and 0.67 and resistance on extensions above 0.68.

Key Movers

The US dollar advanced against risk assets and most major counterparts through trade on Monday as investors continue to price in a faster rate of Federal reserve Monetary Policy normalisation. Friday’s robust non-farm payroll report further bolstered expectations policy makers could raise rates as many as four times throughout 2022. Markets have priced in an 80% probability the FOMC will raise rates in March, with subsequent hikes following in June, September and now December. The promise of higher yields continues to drive USD demand propelling the dollar index near 16-month highs above 96, touching 96.23. Having broken resistance at 96 there is ample scope to suggest the dollar will maintain momentum through Q1, testing 97. The great British Pound slipped back below 1.36 while the Euro tested a break below 1.13 before finding support into the daily close.

Despite the alarming rise in COVID cases both domestically and around the world markets attentions remain affixed to central bank monetary policy expectations. Our focus this week shifts to commentary from Federal Reserve Chair Jerome Powell and US inflation data. Key markers in guiding interest rate expectations through 2022.

Expected Ranges

  • NZD/USD: 0.6700 - 0.6820 ▼
  • NZD/EUR: 0.5920 - 0.6010 ▲
  • GBP/NZD: 1.9950 - 2.0250 ▲
  • NZD/AUD: 0.9380 - 0.9450 ▼
  • NZD/CAD: 0.8520 - 0.8620 ▼