NZD outperforms yet, break above resistance curtailed by hawkish Fed
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Daily Currency Update
The New Zealand dollar was among the best-performing major currencies through trade on Wednesday, lurching upward and gaining more than 1% against the USD. Softer-than-expected US CPI data saw the NZD surge through US$0.62, breaching resistance at US$0.6215 to mark highs not seen since February at US$0.6220. As markets looked to consolidate gains, a surprisingly hawkish Fed policy update forced a reversal in yield losses and helped the USD recover through the back end of overnight trade. With markets moving to price in 2 rate cuts following the softer CPI print, the Fed dot plot showed the average member expects to cut rates just once this year, forcing a swift correction in yields that sent the NZD back toward US$0.6180/90. While still elevated, the NZD remains entrenched within a familiar range unable to sustain a break above resistance.Our attentions now turn to Australian employment data for May and US PPI data for direction through the day ahead.
Key Movers
It has been a wild 24 hours with the US DXY index testing April lows following softer-than-anticipated US inflation data. A cooler-than-anticipated US CPI print drove down US yields with 10-year rates falling 14 basis points and sent the USD tumbling as markets looked to price in at least two Fed rate cuts for 2024. The move was short-lived as the FOMC elected to leave rates on hold, adopting a hawkish stance and proffering a dot plot that suggests most members expect to cut rates just once before the year is out. Markets were forced to quickly pare back USD losses and yield moves as rates along the curve were recovering before the USD pulled back to close just half a per cent lower on the day.Against a backdrop of lower yields, the yen gains forced the USD back below 157 and the euro was afforded some reprieve from political uncertainty and punched back above 1.08. The GBP edged through 1.2750 to test a break above 1.28.
Our attention now turns to US PPI data. After the softer-than-expected CPI reading, this latest PPI update will be key in shaping inflation expectations as it's a key component in the Fed's preferred measure of inflation the PCE deflator index. We are also keenly attuned to US jobless claims and any hint the resilient labour market may be beginning to show signs of weakness.
Expected Ranges
- NZD/USD: 0.6120 - 0.6220 ▲
- NZD/EUR: 0.5680 - 0.5750 ▲
- GBP/NZD: 2.0500 - 2.0800 ▼
- NZD/AUD: 0.9250 - 0.9330 ▼
- NZD/CAD: 0.8420 - 0.8520 ▲