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NZD outperforms as our attentions turn to US inflation data

Thursday 10 February, 2022

Daily Currency Update

The New Zealand dollar outperformed most counterparts through trade on Wednesday as downward pressure on global bond rates eased and risk appetite found support. Having tracked sideways through the domestic session, the NZD gathered momentum in the early part of the European trading day, advancing through 0.6650 and marking intraday highs just shy of 0.67 US cents. With little of note on the domestic ticket to spur direction, our attentions turn now to US CPI data. Tonight’s all-important print will help shape expectations for Fed policy as we move toward the March FOMC policy meeting. While we expect price pressures will have eased through January, the annualised rate of inflation remains shockingly high. A surprise print above 7.3% across headline data points and 5.9% across core items could spur another round of elevated interest rate expectations driving the NZD toward the lower end of recent ranges.

Key Movers

Outside the AUD and NZD, price action across the majors was modest through Wednesday with most investors sidelining major bets until after the US CPI print. With the EUR, GBP and JPY all flat when pared back against the USD, the AUD and NZD have enjoyed strong gains across key crosses. The AUD has pushed back toward 0.63 against the EUR while breaking back above 0.53 against the GBP with the NZD breaking 0.5850 against the EUR and closing in on 0.4950 against the GBP. After last week's hawkish pivot, the ECB and BoE are attempting to water down market expectations with the BoE arguing a measured data-dependent approach will be applied when adjusting policy. We expect little price action through the Asian session with markets withholding moves until US CPI data is released. While we expect a moderation in pressures through January, an elevated read will all but guarantee a 50-basis point hike is priced in next month. On the other hand, a miss to the downside could add weight to recent USD softness as investors scramble to moderate rate hike expectations.

Expected Ranges

  • NZD/USD: 0.6580 - 0.6730 ▲
  • NZD/EUR: 0.5810 - 0.5890 ▲
  • GBP/NZD: 2.0080 - 2.0420 ▼
  • NZD/AUD: 0.9280 - 0.9350 ▲
  • NZD/CAD: 0.8430 - 0.8530 ▲