NZD outperforms as focus shifts to key RBNZ policy update
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Daily Currency Update
The New Zealand dollar outperformed Tuesday, buoyed by softer US data and an improved risk narrative. US PPI data printed softer than anticipated accelerating front-end yield declines as markets price in a larger Fed rate adjustment before year-end. With the USD on the back foot, the NZD pushed back through US$0.6050 marking session highs just short of US$0.61 and opening this morning at US$0.6081. US data will continue to take centre stage as we edge nearer the beginning of a Fed easing cycle and our focus today shifts to US CPI data. A softer read should further weigh on the dollar and allow the NZD room to extend back toward US$0.61. That said, today’s RBNZ policy meeting has the potential to elevate volatility during the domestic session. Opinions are mixed as to whether the RBNZ will lower the official cash rate. Inflation remains above target, but unemployment continues to rise, and the economy is mired in recession. Policy makers face the prospect of starting a series of progressive rate cuts or waiting and risk being forced into larger moves later. We expect policy makers will issue a 25-point rate adjustment. Messaging and forward guidance will be key to shaping the direction coming out of the policy meeting.Key Movers
Softer than expected US PPI data drove a correction across the front end of the US yield curve yesterday driving the dollar lower against key majors. The DXY and BBDXY indices gave up over half a percent. With the Fed expected to commence its easing cycle next month US data remains front and centre. We can expect outsized reactions across currency markets as inflation and labour market data re-shape expectations surrounding the timing and trajectory of near-term rate adjustments. With the USD on the back foot, the GBP outperformed up 0.78%. The unemployment rate unexpectedly fell through the June quarter as strong employment growth helped push the underlying unemployment rate back to 4.2%, in contrast, wages fell with pay rises slowing in pace. All the data offered little to support a shift in current Bank of England pricing expectations and markets are still looking to November as the meeting where policy makers will cut rates. The GBP pushed back above US$1.28 and US$1.2850 and opened this morning at US$1.2870. In other news, the euro is also stronger up 0.6% while the dollar is weaker against the yen.Our attention now turns to US CPI data and UK headline inflation data key markers set to shape near-term rate expectations.
Expected Ranges
- NZD/USD: 0.5980 - 0.6120 ▲
- NZD/EUR: 0.5480 - 0.5600 ▲
- GBP/NZD: 2.1000 - 2.1300 ▼
- NZD/AUD: 0.9080 - 0.9220 ▲
- NZD/CAD: 0.8250 - 0.8400 ▲