NZD consolidates jump above US$0.62 amid expectations of looser future Fed policy

Daily Currency Update

The New Zealand dollar consolidated Monday’s upswing, comfortably tracking above US$0.62 amid modest US CPI data and easing fears the US banking crisis will spread beyond Silicon Valley and Signature Bank. Trading conditions across key currency corridors remain remarkably resistant to the volatile conditions plaguing other financial assets as signs the worst is over begin to emerge. Two- and ten-year treasury rates climbed significantly through trade on Tuesday while key bank stocks recovered, and risk appetite improved. Against this landscape the NZD climbed off intraday lows sought of US$0.6201, seen toward the end of the domestic session, to mark intraday highs at US$0.6245. As trading conditions calmed, and risk appetite improved the NZD found support in shifting Fed funding expectations. US CPI printed more or less in line with expectations yet remains uncomfortably high and affords the policy makers license to continue tightening financial conditions. Future pricing now has a 25-basis point hike priced in next week but beyond this, the likelihood of a pause in April has lifted with just one additional hike priced into May and 50 basis points of easing expected through H2. The shift in peak Fed funding expectations has helped the NZD move off lows south of US$0.6150 and opens the door for a longer-run recovery as we move through Q2.
Our attentions remain squarely affixed on the US banking crisis as the health of the US financial system continues to overshadow key macroeconomic data sets. Further calming of contagion fears should help bolster risk appetite and allow the focus to shift back toward macro themes.