NZD buoyed by domestic inflation print and weaker USD
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Daily Currency Update
The New Zealand dollar edged higher through trade on Wednesday, capitalising on a weaker USD and mixed domestic inflation data. After last week's RBNZ policy update and shift in tone, there was considerable focus on Q1 inflation data and the mixed read did little to help guide investors on near-term rate policy. While headline CPI fell more than anticipated services/non-tradeables increased at an annual rate of 5.4% while core inflation did not retreat as fast as anticipated. Pricing for an August rate cut eased with the market pricing in just a 50% probability of policy change. With NZ yields moving higher the dollar bounced off lows below US$0.6050 eyeing a breakback through US$0.61 before settling between US$0.60605 and US$0.6080 leading into the morning’s open.Our attentions turn now to the ECB policy meeting and US jobless claims as they headline items on a crowded docket.
Key Movers
The US dollar tracked lower against most major counterparts through trade on Wednesday as pricing for a Fed rate cut firmed and comments from former President Trump sparked a sell off. Trump suggested he would prefer to see the dollar weaken against major trading partners, particularly the yen and the yuan to improve US economic competitiveness. The comments sparked a risk off move and sent the USD lower across the board with the yen and Swiss franc the primary beneficiaries as investors looked for haven assets outside the USD. With the USD on the back foot, the euro rallied through 1.09, marking session highs just short of 1.0950 while the GBP broke above 1.30, marking highs not seen since July 2023. Sterling found added support in stronger-than-expected inflation data. Headline inflation held steady at 2% while core inflation printed above consensus estimates at 3.5%. With inflation sticky the market reduced the likelihood of the Bank of England rate cut next month, pricing just a 35% probability of a policy shift.Our attentions today turn to the European Central Bank. We expect they will vote to leave rates on hold, having cut last month but the commentary and rhetoric surrounding the decision will prove key in shaping direction. US jobless claims will also be keenly monitored as US labour market performance and resilience are key to shaping near-term Fed rate expectations.
Expected Ranges
- NZD/USD: 0.6030 - 0.6120 ▲
- NZD/EUR: 0.5500 - 0.5600 ▲
- GBP/NZD: 2.1100 - 2.1500 ▼
- NZD/AUD: 0.8980 - 0.9080 ▲
- NZD/CAD: 0.8270 - 0.8350 ▲