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NZD marks new 15-month lows as Fed signals aggressive policy stance

Thursday 27 January, 2022

Daily Currency Update

The New Zealand dollar has fallen to its lowest level in 15 months, slipping below 0.6650 following the Fed’s policy decision and press statement. FOMC president Jerome Powell was in a hawkish mood, signalling the Fed was ready to increase interest rates and significantly reduce its balance sheet. His commentary prompted markets to price in a 50-basis point hike next month and 5 rate hikes through 2022, catapulting the USD higher and driving the NZD toward intraday lows at 0.6640, a level not seen since November 2020. Having steadied, the NZD now buys 0.6651 US cents and sits perilously close to a key technical support line at 0.6660. A sustained break below this threshold opens the door for a break below 0.66 with 0.6580 and possible 0.6540/50 in play. Our attentions turn now to domestic CPI data. We expect another strong print, with year-on-year inflation closing in on 6%. A print above the RBNZ’s target at 5.7% should reinforce the market expectations for a sustained period of rate hikes. That said, the market has largely priced in RBNZ monetary policy tightening muting price action.

Key Movers

The US dollar rallied sharply following the Fed’s policy update and press statement, as two key headlines drove equities and risk assets lower. Fed Chair Jerome Powell hasn’t ruled out hiking rates at all remaining FOMC policy meetings this year, as policymakers are now comfortable there is ample slack within the labour market to absorb a series of rate hikes without hurting future employment growth. Powell’s comments did little to ease the sell off across equities, in fact, his aggressive stance accelerated losses across major indices while driving most major currencies lower against the USD. The EUR has broken key technical support, slipping below 1.1270 and 1.1250 marking intraday lows at 1.1240 while the GBP tumbled below 1.35 to touch 1.3450. Momentum is again firmly behind the US dollar, with sellers in control and risk aversion increasing. We expect the US dollar will remain in vogue as we move toward the Fed’s next policy update on March 16th.  

Expected Ranges

  • NZD/USD: 0.6600 - 0.6730 ▼
  • NZD/EUR: 0.5890 - 0.5950 ▲
  • GBP/NZD: 2.0120 - 2.0320 ▲
  • NZD/AUD: 0.9320 - 0.9380 ▲
  • NZD/CAD: 0.8380 - 0.8540 ▼