Kiwi steady as rising inflation and wage pressures cement rate hike expectations

Key Movers

Price action across major currencies was largely muted through trade on Monday with most maintaining a narrow +/- 0.3% range against the USD. The Euro was the day’s worst performed and came under pressure early as the Dollar looked set on driving gains and forcing the currency back below 1.16. Having touched lows at 1.1590 the single currency edged higher before maintaining a narrow 10-point range through this morning’s open. Investors appears to be positioning them selves for this weeks ECB policy update. We expect policy markers will present a consistently dovish tone and are focused on two key talking points. What will happen to the current PEPP program of bond purchases? And Will the ECB push back on market expectations for a rate hike in 2023? Any extension in the current bond buying program will likely weigh on the Euro as the Fed appears poised to announce the tapering of its QE program while rising inflationary pressures and global rates might prompt the ECB to bring forward a rate hike. All in all we don’t expect a great deal from this month’s policy update, instead it is seen as a bridging event ahead of possible policy update in December.

US consumer confidence and Manufacturing Index headline the macroeconomic ticket while the risk narrative continues to drive direction.