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Kiwi finally break shackles and jumps back above 0.68 as markets ignore US consumer price surge

Thursday 13 January, 2022

Daily Currency Update

The New Zealand dollar advanced through trade on Wednesday, lurching through 0.68 US cents amid a broader USD downturn. A much-anticipated US Consumer Price Inflation report showed prices rose largely in line with market expectations and offered little to shift investors monetary policy expectations. Markets have now priced in an aggressive path to policy normalisation, with 4 rate hikes all but locked in through 2022. Assuming US rates remain stable moving forward, the NZD may benefit from a broader US dollar weakening. Having tracked sideways through the domestic session, the NZD jumped off 0.6780, powering through 0.68 and 0.6850 to mark intraday highs at 0.6860. Our attentions turn now to US PPI data and unemployment claims ahead of key retail sales data Friday.

Key Movers

The US dollar fell for a second consecutive day, giving up recent highs and tumbling toward a two-month low. Having patiently awaited December CPI data, investors appeared underwhelmed as reports showed prices, despite posting their largest annual gain in almost 40 years, were largely in line with analyst expectations and offered little to re-shape or accelerate expectations for Fed policy change. Markets used the opportunity to deleverage recent USD shorts, selling down the base currency and chasing gains across commodity linked currencies and risk assets. The dollar index fell over half a percent, touching lows not seen since early November. In light of the market's reaction today, it appears many of the data points driving positive USD price action are already priced in, and the USD could struggle to maintain its recent momentum in the absence of a major move in the rates market. The correction saw the EUR surge through 1.14 to 1.1450 while the GBP jumped through 1.37 and the JPY forced the dollar back below 114.50. The question now; is this the beginning of a correction we expected wouldn’t materialise until Q2, or a minor hiccup in the recent USD resurgence?

Expected Ranges

  • NZD/USD: 0.6720 - 0.6890 ▲
  • NZD/EUR: 0.5950 - 0.6010 ▲
  • GBP/NZD: 1.9920 - 2.0130 ▼
  • NZD/AUD: 0.9350 - 0.9420 ▼
  • NZD/CAD: 0.8500 - 0.8600 ▲