NZD range bound as Fed hikes rates and markets price for an end to tightening

Key Movers

Price action across major currencies was largely muted on Wednesday, despite a slew of headline data events and central bank policy updates. The USD DXY index is modestly lower, down 0.3%, after Federal Reserve Chair, Jerome Powell’s, post-policy meeting press conference. As anticipated, the FOMC lifted rates by 25 basis points and the post-meeting statement was almost identical to last month the post-meeting press conference saw Powell proffer a dovish response when quizzed about the probability of a rate hike in September. Powell reiterated the need to be data-dependent, pointing to Jobs, Inflation and activity markers as cornerstones in shaping policy decisions. While the Fed remains steadfast and resolute in its commitment to controlling inflation, it is evident that policymakers are conscious of tightening too far too fast and pushing the economy into recession. US yields were lower with two-year and 10-year rates down 7 and 2.5 basis points respectively. With the USD on the back foot, the Euro pushed back toward 1.11 while the pound rallied through 1.29.

Our attentions turn now to the ECB policy meeting and rate statement. We expect a 25-point rate hike and are keenly attuned to commentary from ECB president Christine Lagarde. Leading indicators suggest past rate hikes are working to control activity and add downward pressure on inflation, but with inflation still well above target we expect the ECB will want to keep alive the option for future rate hikes.