NZD underperforms ahead of RBNZ policy update
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Daily Currency Update
Net moves across major currencies were marginal through trade on Tuesday and against that backdrop the NZD underperformed, sliding back below US$0.61 as markets square positions leading into today’s all-important RBNZ policy update. Market pricing suggests the economy is tracking weaker than the bank's current projections, while inflation remains stubbornly sticky. While price pressures remain elevated sluggish growth should weigh on inflation through the back half of the year and we expect little change in RBNZ messaging or cash rate projections. Rates should remain on hold at 5.5% and anything short of a shock shift in guidance will likely ensure the NZD remains relatively well contained.Key Movers
All eyes were turned to Canada’s CPI print on Tuesday as a marker for global inflationary trends and monetary policy expectations. Price pressures eased more than expected with core inflation down to 2.75% from 2.95% in March. The softer-than-anticipated read allowed markets to firm bets for a rate cut next month. Markets have now priced in a 60% chance of a rate adjustment on June 5th driving the Canadian dollar lower across the board.In the EU Q1 labour costs were up in Q4 2023 casting a shadow of doubt over whether the European Central Bank will cut the rate in June. While these numbers on their own are unlikely to sway policy makers away from loosening monetary policy conditions they could sway the narrative of the future rate adjustments. The euro despite attempting a break back above US$1.0875 traded lower on the day and currently sits marginally above US$1.0850.
With the USD and other majors tracking sideways, our attention now turns to the UK CPI and the Federal Open Market Committee May Meeting Minutes. Bank of England Governor Andrew Bailey, while speaking at the London School of Economics, suggested inflation is expected to move significantly back toward the bank's target of 2% as lower energy prices drive down inflationary pressures. We expect core CPI to fall to 3.6% year on year, down from 4.2%. A soft read will elevate calls for a rate cut next month.
Expected Ranges
- NZD/USD: 0.6020 - 0.6150 ▼
- NZD/EUR: 0.5550 - 0.5680 ▼
- GBP/NZD: 2.0750 - 2.1050 ▲
- NZD/AUD: 0.9080 - 0.9180 ▼
- NZD/CAD: 0.8250 - 0.8350 ▼