NZD marks new two year low before mounting a recovery

Key Movers

There was ample content to excite investors overnight as currency markets enjoyed a period of elevated volatility and price action. The USD surged through the early part of the trading day marking new highs and forcing the euro, GBP and JPY to fresh lows. The Japanese yen’s rapid decline continued giving up ¥144 and ¥144.50, stopping just shy of a break above ¥145. The deterioration in yen yields and the Bank of Japan’s policy of yield curve maintenance have forced investors away from the yen despite the recent risk-off narrative. Haven plays have been driven toward the US dollar as Fed rate hikes and the promise of more aggressive monetary policy elevate expectations for a widening yield gap. The euro traded flat before recovering back above parity on the heels of a USD correction, while the GBP bounced off 37-year lows, extending back above £1.15.

We now turn our attention to the ECB’s policy meeting. We anticipate policy makers will respond to the current inflationary pressures and lift rates by three-quarters of a percent, proffering an aggressive policy platform moving forward. Key policy makers have hinted at a desire to curb near-term inflation at the expense of a deeper recession, fearing price pressures will become entrenched. A hawkish ECB could help drive a near-term euro recovery and potentially extend a short-term bounce above parity.