FX Update: NZD/USD clocks 13 week low

Market Overview

Central Bank action and Inflation continues to dominate market moves this year with the Ukraine War raging on in the background hitting currencies hard.

The New Zealand Dollar (NZD) has earned the spot of the second to worst performer in 2023 so far ahead of the Japanese Yen (JPY), whereas the US Dollar (USD) has been the strongest performer.

As predicted the RBNZ raised their interest rate 50 basis points from 4.25% to 4.75% recently but defied expectations of a signal for a lower peak. In line with recent weather events there’s still room to move higher than the 5.5% initial top with policy guidance still required at the current pace. At 5.5% this would make it one of the highest interest rates in the developed world. With cyclone Gabrielle destroying large parts of New Zealand’s North Island the battle with inflation just got tougher for the RBNZ with several billions said to be needed to rebuild infrastructure and homes. Inflation currently stands at 7.2% for the fourth quarter of 2022 way to high. Read more

Calendar of Economic Releases

Sunday Feb 26
Day 4 All G20 Meetings

Monday Feb 27
10:45am NZD Retail Sales q/q
Forecast: 0.20%
Previous: 0.40%
10:00pm GBP MPC Member Broadbent Speaks

Tuesday Feb 28
2:30am USD Core Durable Goods Orders m/m
Forecast: 0.10%
Previous: -0.20%
2:30am USD Durable Goods Orders m/m
Forecast: -3.70%
Previous: 5.60%
4:00am USD Pending Home Sales m/m
Forecast: 0.90%
Previous: 2.50%
5:10pm JPY BOJ Gov-Designate Ueda Speaks Read more

AUD/USD Transfer

The Australian Dollar (AUD) has extended last week’s losses falling back to 0.6780 this morning as risk mood waivers and equity markets close in the red. Fed minutes confirmed members were unanimously in favour of a 25 point rise on the 1st of Feb allowing them to better evaluate the economies progress as they determine the extent of future tightening. Another 25 point rise at the next meeting late March was also likely. US annual growth slowed in December to 2.7% from the expected 2.9% the 4th quarter straight it has published underestimate. Spending from services was up 2.4% while exports fell 1.6%. Upcoming on the docket we have US new home sales and looking into next week Australian CPI. 0.6650 offers stable support in the pair.

The current interbank midrate is: AUDUSD 0.6813
The interbank range this week has been: AUDUSD 0.6781- 0.6919

NZD/GBP Transfer:

The British Pound (GBP) looked strong during early week trading clocking 1.9520 (0.5120) before pulling back to 1.9300 (0.5180) areas this morning. The RBNZ raised the cash rate 50 points as predicted Wednesday to 4.75% helping the kiwi to go on a short rally, Orr saying chances of a longer period of high inflation and ultimately higher interest rates look a possibility based on recent weather events which have devastated NZ. Citigroup are predicting a giant fall to inflation towards the end of this year with figures to slump to close to 2.0% with lower gas prices being the main driver. All things being equal we could see sharp rises in the NZD/GBP as monetary policy diverges. For the moment the GBP has enjoyed 3 weeks of momentum- we suspect this won’t last.
The current interbank midrate is: NZDGBP 0.5184 GBPNZD 1.9290
The interbank range this week has been: NZDGBP 0.5122- 0.5204 GBPNZD 1.9214- 1.9522

NZD/USD Transfer

As predicted the RBNZ raised their interest rate 50 basis points from 4.25% to 4.75% Wednesday but defied expectations of a signal for a lower peak. In line with recent weather events there’s still room to move higher than the 5.5% initial top with policy guidance still required at the current pace. The New Zealand Dollar (NZD) pushed up to 0.6250 from 0.6200 levels against the US Dollar (USD) but has failed to hold here falling back to lows. The Fed minutes highlighted a tight labour market, risk in the Ukraine War helping to keep inflation elevated, on the whole economic risks are still tilted to the downside. US GDP fell to 2.7% for the fourth quarter 2022 compared to 2.9% predicted for the fourth quarter in a row, the figure has come in light as unemployment claims unexpectedly fell in the month of December. The cross sits at the key support around 0.6200 as I write, we think this should hold into the close.

The current interbank midrate is: NZDUSD 0.6232
The interbank range this week has been: NZDUSD 0.6196- 0.6262

NZD/AUD Transfer:

On Wednesday, the RBNZ hiked interest rates 50 points to 4.75% as widely predicted with peak expectations of 5.5% marked slightly lower in late 2023. Recent devastation from cyclone Gabrielle could spoil this however as we head into 2024 with a tight labour market and inflation if it stays stubbornly high for longer periods. Softer than expected Aussie jobs data Wednesday meant the AUD was dealt a double hit falling from 1.1050 (0.9050) area to 1.0930 (0.9150) this morning, wages declining 0.8% for the fourth quarter 2022 highlighting proper income pressures on consumers with contrasting high CPI. A fall below 1.0830 (0.9235) would signal a momentum shift, for now the cross sits around the bottom of the recent bull trend.

The current interbank midrate is: NZDAUD 0.9144 AUDNZD 1.0932
The interbank range this week has been: NZDAUD 0.9017- 0.9154 AUDNZD 1.0924- 1.1089

FX Update: Key Points This Week

Key Points:

New Zealand has declared a national emergency- the third time ever amid the devastation caused by cyclone Gabrielle.
US CPI released this morning coming in stronger than hoped at 6.4% year on year compared to forecast of 6.2%.
Japanese growth for the fourth quarter came up short at 0.2% vs projected 0.5%.
The Fed now expect further rate rises if Retail Sales comes in hot tomorrow.
The European Central Union is predicting interest rates to go higher than 3.5% with a March 50 point hike now priced in.
Australian February Westpac Consumer Sentiment Index jumps from -1 to +6 for January.
NZ first quarter inflation forecast falls from 3.62% to 3.3%.
UK’s unemployment remained unchanged at 3.7% in December.
The Australian Dollar (AUD) has been the strongest currency this year while the Japanese Yen (JPY) has been the worst performer.

AUD/USD Transfer

The Australian Dollar (AUD), US Dollar (USD) came to life this morning on the release of key US CPI data turning inside out around 0.6980 before settling at 0.6990. The realisation the Federal Reserve will need to keep rates higher for longer with the outlook of the rate being 5.0% – 5.5% at year-end was considered. Growth at 1.0% and unemployment to rise to 4.0% may be the saviour with only an average chance now that the US economy will drop into a recession later this year. Looking ahead we have Aussie unemployment tomorrow and US Retails Sales, unemployment is predicted to publish steady at an unchanged 3.5%. We still see moderate upside for the AUD to 0.7150. However precious metals remain soft which might limit moves to the north.

The current interbank midrate is: AUDUSD 0.6986
The interbank range this week has been: AUDUSD 0.6891- 0.7028

NZD/USD Transfer

The Federal Reserve confirmed this morning they were far from finished with hiking rates with the CPI rising from 6.4% to 6.5% for the year ending January 2023. Any chances of rates coming down is not predicted until well into 2024-2025 years. The New Zealand Dollar (NZD) jumped around on the news arriving back where it started early morning circa 0.6340. The cross has been pushing off the 200-day moving average of late at 0.6370 with investors not keen to push through these levels in line with US equities posting losses. NZ Inflation expectations fell from a 31-year high Tuesday prompting markets to consider further large rate hikes may be over. Two-year forecasts have eased from 3.62% in December to 3.3%. The next RBNZ meeting is on the 22nd of February with picks of a 50-point hike to 4.75% instead of earlier pricing of a rise to 5.0%. This alone should put pressure on the kiwi heading into next week with a retest of the 11-week low at 0.6220 possible.

The current interbank midrate is: NZDUSD 0.6334
The interbank range this week has been: NZDUSD 0.6296- 0.6388