NZD flung upwards by softer than anticipated US inflation print

Daily Currency Update

The New Zealand dollar surged through resistance overnight, buoyed by softer-than-expected US inflation data. Markets largely ignored the RBNZ's latest policy offering as policymakers elected to hold rates steady at 5.5%. While this is the first pause to the tightening cycle after 12 consecutive rate hikes, the decision was well forecast and markets were well positioned. With the accompanying statement confirming the economy continues to evolve in line with the Bank’s expectations, there was little to spark any significant shift in NZD value. Instead, attentions remain affixed to US inflation data. Headline inflation fell from 4% to 3%, marking its slowest pace since March 2021, while core inflation undershot expectations printing below 5%. The softening in US price pressures prompted markets to pare back expectations for rate hikes beyond this month, driving US treasury yields and the US dollar lower. Having tracked between US$0.6180 and US$0.6220 leading into the CPI update, the NZD catapulted higher immediately following the data release, jumping through US$0.6250 to test a break above US$.63. Having failed to extend through US$0.63 our attentions now turn to US Core PPI data, a key leading indicator of further easing in inflation pressures. Another soft print could elevate calls for the Fed to end tightening rates and act as a catalyst that propels the NZD back above US$0.63.