Home Daily Commentaries New Zealand dollar rallies above 64 US cents

New Zealand dollar rallies above 64 US cents

Daily Currency Update

The Kiwi dollar is stronger this morning when valued against the Greenback. Another US CPI downside miss has driven risk appetite higher alongside much lower US rates, supporting equity markets and leading to a large broad-based fall in the Greenback. The Kiwi dollar surged to as high as US$0.6513 before settling down to US$0.6465 for an overnight gain of 1.4%. The NZD/USD pair is currently trading at 0.6461 at time of writing. On the data front yesterday NZ Food Price Index (FPI) shows food prices increased 10.7% for November 2022 compared to a year ago. In November, the average cost increase from suppliers to the Foodstuffs co-operatives on the same products measured in the FPI basket was 9.9%. The fight against inflation to help ease pressure on household budgets will remain our number one focus over Christmas and into 2023. The cost of getting food to market is still being pushed up by the escalating overall cost of doing business and ongoing supply chain pressures. Yesterday the Real Estate Institute of New Zealand (REINZ) released its housing market results for November, with sales crashing to a 12-year low, inventory soaring and house prices down 13.7% year-on-year. The number of residential property sales across New Zealand decreased annually by 36.1%, from 8,644 in November 2021 to 5,525 in November 2022. It was the lowest sales volumes for the month of November since 2010.

Looking ahead today and we will see the release of the Current Account which is directly linked to currency demand. NZ’s annual current account deficit is expected to crack a record 8% of GDP, a sign of an overheated domestic economy through much of the past year. A rising surplus indicates that foreigners are buying more of the domestic currency to execute transactions in the country.

Key Movers

Overnight inflation data from the United States released showed an increase in the Consumer Price Index (CPI) in November of 0.1% below the 0.3% of market consensus. According to analysts another moderation in monthly core CPI helps to reaffirm that the USD peak is here. The data comes ahead of the FOMC’s latest forecasts and policy announcement in just over 24 hours. As a consequence of the Consumer Price Index, the terminal Fed rate is now down to 4.86% vs 4.98% prior to the report which is weighing heavily on the US dollar and US Treasury yields. While the market has also pared back further tightening expectations, with a dialled-down 25bps hike in early February now seen as more likely than another 50bps.

The Great British pound also soared sharply following the release of a softer-than-expected inflation report in the United States (US) reported by the Bureau of Labor Statistics (BLS) on Tuesday. In the release, the GBP/USD broke to levels last seen in June 2022, hitting a fresh six-month high at around 1.2442, though it remains volatile in the aftermath of the release of the Consumer Price Index (CPI). In other news UK public sector wages increased by 2.7% in the year to October, according to official figures that will fuel the anger of rail and health sector workers preparing to go on strike in the run-up to Christmas. The headline rate of pay rises for all workers excluding bonuses rose to 6.1% in the three months to October, from 5.7% in September. Ministers have said they will fund a pay rise of 3% for public sector workers and give nurses an average of 4% in line with a pay review body’s recommendations.

Expected Ranges

  • NZD/USD: 0.6350 - 0.6550 ▲
  • NZD/EUR: 0.5950 - 0.6150 ▲
  • GBP/NZD: 1.9000 - 1.9200 ▲
  • NZD/AUD: 1.0500 - 1.0700 ▼
  • NZD/CAD: 0.8650 - 0.8850 ▲