NZD tests 0.68 as risk sentiment improves

Key Movers

Thursday was dominated by a slew of central bank commentary, with both the ECB and Bank of England delivering policy updates. As the US dollar continues its contraction in the wake of the Fed policy update, the ECB confirmed it would start tapering bond purchases from early next year, with a plan to end the Pandemic bond-buying program in March. The winding down of emergency relief will be coupled with an increase in its traditional QE program as policymakers attempt to wean the market off central bank supports and avoid a brutal transition. European bond rates advanced in the wake of the policy update, while the euro marked intraday highs at 1.1360 before edging back toward 1.1320/30 this morning.

Not to be outdone, the Bank of England surprised analysts and investors alike, announcing a 15 basis point rate hike, raising the cash rate from 0.1% to 0.25%. With just 40% of the market pricing in any policy update, the majority of traders were forced to scramble and correct positions and adjust for further rate hikes over the coming 12-24 months. The GBP rallied sharply higher, pushing back through 1.33 to mark intraday highs at 1.3375.

Having navigated this week’s risk events, we anticipate price action will ease leading into the holiday period with direction driven by fluctuations in the risk narrative, largely led by developments in the race against the Omicron COVID-19 variant.