USD drops as Powell signals slower pace of rate hikes

Thursday 1 December, 2022

Daily Currency Update

Federal Reserve Chairman, Jay Powell all but confirmed that members of the Federal Open Market Committee are looking to slow the pace of interest rate hikes in December in a speech given last night. Powell was speaking at Washington's Brooking Institution where he commented "the time for moderating the pace of rate increases may come as soon as the December meeting." This was the clearest signal yet that the Fed is looking to balance taming inflation without prompting a sharper economic downturn that many predict the US heading towards. The comments prompted an immediate dollar sell-off despite Powell's insistence that the Fed would continue to raise rates well into 2023. A 50bp hike now looks like the most likely outcome rather than another aggressive 75bp move. Yesterday’s other big news was the first fall in eurozone inflation since June 2021. CPI for the bloc fell from 10.6% to 10% further than expected and a possible sign that we may have seen the peak of price rises. The level is still five times above target and at present, it seems still likely that the European Central Bank will deem a 75bp hike necessary at its December 15th policy decision. Later today we have Personal Consumption Expenditure data from the US at lunchtime which is followed by the ISM Manufacturing PMI at 3 pm. EUR/USD is up to 1.0430.

Key Movers

GBP/USD has pushed up towards 1.21 overnight as US Federal Reserve Chairman, Jay Powell signalled that policy makers will slow the pace of rate hikes at its December meeting. GBP/USD touched 1.19 before jumping on the news with almost all currencies gaining against the dollar. Domestically there have been further signals that the UK economy is under pressure with data from Nationwide Building Society showing that house prices fell at their fastest pace since June 2020 in November. The 1.4% fall in prices was far worse than the 0.3% drop predicted and shows that higher borrowing costs are starting to impact the housing market. There is no UK data for the rest of the day so overseas releases will likely guide sterling's direction. GBP/USD is at 1.21 with GBP/EUR just above 1.16.

Expected Ranges

  • GBP/USD: 1.2060 - 1.2200 ▲
  • GBP/EUR: 1.1540 - 1.1665 ▲
  • GBP/AUD: 1.7700 - 1.7885 ▼
  • EUR/USD: 1.0355 - 1.0500 ▲

NZD breaks US$0.63 as Fed President suggest pace of hikes will slow

Thursday 1 December, 2022

Daily Currency Update

The New Zealand Dollar has surged through US$0.63 overnight following less than hawkish commentary from Fed president Jerome Powell. With little of note on the domestic ticket the NZD drifted sideways through much of the local session bouncing between US$0.6190 and US$0.6230. Optimism surrounding the eventual move away from Covid-zero in China continues to gather momentum as officials consider authorising a fourth Covid booster, while messaging emanating from Chinese State media is beginning to pivot away from fear of the virus and toward personal responsibility. The CNY and CNH continued their recent run of strength underpinning NZD gains and helping solidify support on moves below US$0.62. Having marked session highs just short of US$0.62500 the NZD leap toward US$0.63 as markets scramble to respond to commentary from Fed Chair Jerome Powell. Where Fed officials have been at pains to suggest the pace of rate hikes won’t change Powell’s comments sparked a sharp correction across US rates and sent the USD tumbling. Powell suggested “we don’t want to overtighten” and that “slowing rate hikes at this point makes sense”. Markets rushed to adjust expectations for the December 15 policy update with near 90% pricing in a smaller pace of rate adjustment and a 50-point hike. Having touched intraday highs at US$0.6312 the NZD opens this morning at US$0.6301.

Key Movers

Price action across major currencies was relatively modest through much of Wednesday until Fed Chair Jerome Powell served up a less than hawkish statement ahead of key non-farm payroll data. Having tracked sideways the dollar index plunged after Powell suggested “We don’t want to overtighten” and that “slowing rate hikes makes sense”. Powell’s comments forced markets to rapidly re-adjust US rate expectations with near 90% of analyst now pricing a tempering in the pace of rate adjustment and a 50-point hike later this month. The less than hawkish statement sits in contrast to recent commentary from key FOMC policy makers where the importance of quashing in inflation and maintaining tighter monetary policy programs has been imbued. With the USD on the back foot the Euro surged back through €1.04 despite a significant downside miss on inflation, while the pound lurched back above £1.20 and the Yen gathered more momentum sending the USD below ¥138.50 and new intraday lows at ¥137.75. Our attentions turn now to US non-farm payroll data Friday. A miss against expectations will likely heap more pressure on the USD.

Expected Ranges

  • NZD/USD: 0.6180 - 0.6320 ▲
  • NZD/EUR: 0.5980 - 0.6080 ▲
  • GBP/NZD: 1.9080 - 1.9420 ▼
  • NZD/AUD: 0.9230 - 0.9300 ▲
  • NZD/CAD: 0.8380 - 0.8520 ▲

AUD surges toward US$0.68 as Fed President suggest pace of hikes will slow

Thursday 1 December, 2022

Daily Currency Update

The Australian dollar opens just shy of US$.68 this morning having surged higher leading into this morning’s open. With little of note on the domestic docket the AUD drifted sideways through much of the local session bouncing between US$0.6675 and US$0.6725. Optimism surrounding the eventual move away from Covid-zero in China continues to gather momentum as officials consider authorising a fourth Covid booster, while messaging emanating from Chinese State media is beginning to pivot away from fear of the virus and toward personal responsibility. The CNY and CNH continued their recent run of strength dragging the AUD higher and allowing analyst to bypass a softer than anticipated inflation print. Having marked session highs just short of US$0.6750 the AUD leap toward US$0.68 as markets scramble to respond to commentary from Fed Chair Jerome Powell. Where Fed officials have been at pains to suggest the pace of rate hikes won’t change Powell’s comments sparked a sharp correction across US rates and sent the USD tumbling. Powell suggested “we don’t want to overtighten” and that “slowing rate hikes at this point makes sense”. Markets rushed to adjust expectations for the December 15 policy update with near 90% pricing in a smaller pace of rate adjustment and a 50-point hike. Having touched intraday highs at US$0.6802 the AUD opens this morning at US$0.6795.

Key Movers

Price action across major currencies was relatively modest through much of Wednesday until Fed Chair Jerome Powell served up a less than hawkish statement ahead of key non-farm payroll data. Having tracked sideways the dollar index plunged after Powell suggested “We don’t want to overtighten” and that “slowing rate hikes makes sense”. Powell’s comments forced markets to rapidly re-adjust US rate expectations with near 90% of analyst now pricing a tempering in the pace of rate adjustment and a 50-point hike later this month. The less than hawkish statement sits in contrast to recent commentary from key FOMC policy makers where the importance of quashing in inflation and maintaining tighter monetary policy programs has been imbued. With the USD on the back foot the Euro surged back through €1.04 despite a significant downside miss on inflation, while the pound lurched back above £1.20 and the Yen gathered more momentum sending the USD below ¥138.50 and new intraday lows at ¥137.75. Our attentions turn now to US non-farm payroll data Friday. A miss against expectations will likely heap more pressure on the USD.

Expected Ranges

  • AUD/USD: 0.6650 - 0.6830 ▲
  • AUD/EUR: 0.6420 - 0.6550 ▲
  • GBP/AUD: 1.7620 - 1.8020 ▼
  • AUD/NZD: 1.0720 - 1.0820 ▼
  • AUD/CAD: 0.9020 - 0.9150 ▲

Canadian dollar makes gains on equity and oil rebound

Wednesday 30 November, 2022

Daily Currency Update

The Canadian dollar is starting the day up as oil is up with the WTI benchmark coming back over the $80 a barrel level and futures markets are pointing towards a positive open for the North American session.  The CAD had a bad start to the week, losing close to 2% against the USD.  Positive data in European trading though has led to a rebound in more risk positive assets.  With no Canadian data on the docket today, the CAD will trade along with reactions to the weekly oil inventories from Cushing OK, and the lunchtime address from Fed Chair Powell.

Key Movers

The USD has lost ground in overnight markets, losing ground against all the other major currencies.  This is ahead of comments today from Fed chair Jerome Powell on what the Fed’s outlook is on inflation and rates moving into 2023.  Should Powell continue the hawkish tone of other Fed board member though, the focus will squarely be on tomorrow’s PCE inflation data to drive market expectations for US interest rates. Today’s data prints saw the US economy experiencing more growth in Q3 than expected, with the GDP print showing 2.9% growth, compared to the consensus 2.7%. The euro saw gains in the overnights as inflation in the trading zone fell to 10% for October, down from the previous 10.6%. This is the first drop in inflation since July 2021. In Asian Markets, Chinese PMI data missed expectation coming in at 46.7, below the forecasted 48.0. This shows waning confidence from Chinese manufacturers as that deal with continued government restrictions around Covid19.  The Australian dollar followed the Chinese data downward at first but rebounded to where it started the session on improved equities markets and commodity pricing.

Expected Ranges

  • EUR/CAD: 1.40 - 1.4125 ▲
  • GBP/CAD: 1.6205 - 1.6362 ▲
  • AUD/CAD: 0.9069 - 0.9125 ▲
  • USD/CAD: 1.3504 - 1.3643 ▼

USD down ahead of Powell comments

Wednesday 30 November, 2022

Daily Currency Update

The USD has lost ground in overnight markets, losing ground against all the other major currencies.  This is ahead of comments today from Fed chair Jerome Powell on what the Fed’s outlook is on inflation and rates moving into 2023.  Should Powell continue the hawkish tone of other Fed board member though, the focus will squarely be on tomorrow’s PCE inflation data to drive market expectations for US interest rates. Today’s data prints saw the US economy experiencing more growth in Q3 than expected, with the GDP print showing 2.9% growth, compared to the consensus 2.7%.

Key Movers

The euro saw gains in the overnights as inflation in the trading zone fell to 10% for October, down from the previous 10.6%. This is the first drop in inflation since July 2021. In Asian Markets, Chinese PMI data missed expectation coming in at 46.7, below the forecasted 48.0. This shows waning confidence from Chinese manufacturers as that deal with continued government restrictions around Covid19.  The Australian dollar followed the Chinese data downward at first but rebounded to where it started the session on improved equities markets and commodity pricing.

Expected Ranges

  • EUR/USD: 1.0321 - 1.0379 ▲
  • GBP/USD: 1.1943 - 1.2023 ▼
  • AUD/USD: 0.6674 - 0.6739 ▲
  • USD/CAD: 1.3412 - 1.3546 ▲

Markets await Eurozone inflation data

Wednesday 30 November, 2022

Daily Currency Update

The pound remains rangebound versus the USD and euro at present in the absence of any top tier released hitherto this week. GBP/USD has slipped back under 1.20 which is likely due to some poor manufacturing data released in China seeing the safe haven USD sought by investors. Bank of England Governor, Andrew Bailey spoke before the House of Lords Economic Affairs Committee yesterday and revealed the level of dysfunction that was seen before September's disastrous mini-budget unveiled by former Chancellor of the Exchequer, Kwasi Kwarteng which sent GBP/USD to an all-time low below 1.04. Bailey confirmed to the committee that the vast majority of the content of the mini-budget was unknown to the Bank, which is not the usual protocol, and that members of the Banks Monetary Policy Committee and the Office for Budget Responsibility learned of the plans as they were unveiled in parliament. Bailey didn't disclose too much on potential future interest rate policy moves so the pound wasn't really affected by the discussion and with little domestic data due for the rest of the week it will likely be more external factors that influence its value. GBP/USD currently trades around 1.1965 with GBP/EUR around 1.1560.

Key Movers

Today’s big event from the Eurozone is the release of the latest inflation numbers which are expected to show that CPI has moderated slightly from 10.6% to 10.4%. On Monday European Central Bank president, Christine Lagarde indicated that she wishes to push ahead with another 75bp hike in interest rates at its December meeting given how quickly prices are rising. That said, yesterday's Spanish and German inflation numbers came in under expectations so should today’s number also undershoot the chances of a more conservative 50bp hike will increase. From the States this evening sees Chairman of the Federal Reserve, Jay Powell speak at the Brooking Institute in Washington. The discussion is to be focused on the US economy and therefore commentary on future policy moves by the Fed will likely be on the agenda. At lunchtime, we have ADP Non-Farm Employment Change data which is expected to show 196k were added to payrolls in November. We also have the second reading of Q3 GDP which is predicted to be revised upwards to 2.8% y/y from the initial estimate of 2.6%. In China civil unrest continues in the face of the government’s zero-Covid policy. The lockdowns seem to be impacting economic output as its latest Manufacturing PMI showed. November’s print came in at 48 lowers than the 49 forecasts and well below the 50 that divides contraction and expansion. EUR/USD is down a touch to 1.0370.

Expected Ranges

  • GBP/USD: 1.1940 - 12065 ▼
  • GBP/EUR: 1.1490 - 1.1660 ▼
  • GBP/AUD: 1.7740 - 1.7940 ▼
  • EUR/USD: 1.0315 - 1.0440 ▼

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NZD rebounds as China seeks to ramp up vaccination rates

Wednesday 30 November, 2022

Daily Currency Update

The New Zealand dollar rebounded through trade on Tuesday, bouncing off US$0.6160 amid an improvement in risk sentiment. The market focus remains on China and changes in its COVID management policies. Reports that Chinese authorities are preparing to ramp up vaccination rates, particularly among the elderly, have been viewed as another step towards living with the virus and a move away from the current COVID zero program. Vaccination rates among China’s elderly have been a significant impediment to lifting restrictions. With authorities announcing plans to allow booster shots within 3 months of a previous vaccination shot, markets are preparing for a broader re-opening and rolling back of COVID restrictions come April 2023. The CNY surged on the heels of the report, dragging the NZD back through US$0.62. Having touched intraday highs at US$0.6250, the NZD retreated through the later hours of the overnight session and opened this morning buying US$0.6195. Our attentions turn now to Australian CPI data, Chinese PMI’s, European CPI data and US ADP employment payrolls. Despite the crowded data docket, we anticipate direction will be largely well contained, with the NZD continuing to trade between US$0.6080 and US$0.6280 leading into Friday’s all-important US non-farm payroll print.

Key Movers

Price action across major currencies offered little to excite investors as the euro, GBP, JPY and DXY index all tracked within a relatively narrow range. Reports China will seek to ramp up vaccination rates among the elderly have helped fuel improved risk sentiment and steer the CNH and CNY higher, lifting key commodity currencies with them. The CAD was the surprise underperformer, giving 1% on the day despite domestic GDP growth outpacing market expectations. Our attentions turn now to a crowded macroeconomic ticket headlined by European CPI. While German CPI printed in line with market expectations, overnight, Spanish CPI fell well below analysts' mean estimates. With European Central Bank officials highlighting the importance of this month's inflation update in shaping the near-term direction, we are keenly attuned to anything marginal short or above market estimates. With analysts divided on whether European Central Bank policy makers will adopt a 75 or 50-point hike next month, we anticipate elevated volatility in the wake of this evening's data update.

Expected Ranges

  • NZD/USD: 0.6120 - 0.6250 ▲
  • NZD/EUR: 0.5950 - 0.6050 ▲
  • GBP/NZD: 1.9180 - 1.9420 ▼
  • NZD/AUD: 0.9180 - 0.93280 ▼
  • NZD/CAD: 0.8320 - 0.8480 ▲

AUD rebounds as China looks to ramp up vaccination rates

Wednesday 30 November, 2022

Daily Currency Update

The Australian dollar rebounded through trade on Tuesday, bouncing off US$0.6640 amid an improvement in risk sentiment. The market focus remains on China and changes in its COVID management policies. Reports Chinese authorities are preparing to ramp up vaccination rates, particularly among the elderly, have been viewed as another step towards living with the virus and a move away from the current COVID zero program. Vaccination rates among China’s elderly have been a significant impediment to lifting restrictions. With authorities announcing plans to allow booster shots within 3 months of a previous vaccination shot, markets are preparing for a broader re-opening and rolling back of COVID restrictions come April 2023. The CNY surged on the heels of the report, dragging the AUD back through US$0.67. Having touched intraday highs at US$0.6750, the AUD retreated through the later hours of the overnight session and opened this morning, buying US$0.6680. Our attentions turn now to domestic CPI data, Chinese PMI’s, European CPI data and US ADP employment payrolls. Despite the crowded data docket, we anticipate direction will be largely well contained, with the AUD continuing to trade between US$0.6580 and US$0.6780 leading into Friday’s all-important US non-farm payroll print.

Key Movers

Price action across major currencies offered little to excite investors as the euro, GBP, JPY and DXY index all tracked within a relatively narrow range. Reports China will seek to ramp up vaccination rates among the elderly have helped fuel improved risk sentiment and steer the CNH and CNY higher, lifting key commodity currencies with them. The CAD was the surprise underperformer, giving 1% on the day despite domestic GDP growth outpacing market expectations. Our attentions turn now to a crowded macroeconomic ticket headlined by European CPI. While German CPI printed in line with market expectations, overnight, Spanish CPI fell well below analysts' mean estimates. With European Central Bank officials highlighting the importance of this month's inflation update in shaping the near-term direction, we are keenly attuned to anything marginal short or above market estimates. With analysts divided on whether European Central Bank policy makers will adopt a 75 or 50-point hike next month, we anticipate elevated volatility in the wake of this evening's data update.

Expected Ranges

  • AUD/USD: 0.6620 - 0.6750 ▲
  • AUD/EUR: 0.6420 - 0.6520 ▲
  • GBP/AUD: 1.7720 - 1.8020 ▼
  • AUD/NZD: 1.0750 - 1.0820 ▲
  • AUD/CAD: 0.8970 - 0.9150 ▲