By Stuart Talman, XE currency strategist
An uneventful local session generated a ~20pip range for the Kiwi, meandering along between 0.6200 and 0.6220.
The European session looked like it may dial up the excitement levels with the release of stronger-than-expected UK CPI data – the immediate reaction lifting GBP and global bond yields as investors were provided with another data point that signalled the inflation fight is far from over.
Headline inflation in the UK peaked at 11.1% in October and was expected to fall below the 10% mark for the first time since August. It was not to be, printing at 10.1% (vs 9.8% expected), the 7th consecutive month of annualised double-digit inflation.
Following on from hot wage growth data, 24 hours earlier, the upside beat for CPI likely requires further tightening from the Bank of England. It will be a shock on 11 May if the policy rate is not lifted a further 25bps to 4.50%.
The pound benefitted, the strongest performer amongst the G10 cohort, albeit logging a modest gain of less than a quarter-of-a-percent.
The Kiwi was trading close to 0.5000 prior to the CPI release, falling a few pips below 0.4970 over the next few hours before paring most of its losses. Given last week’s low was marked a few pips away from Thursday’s low, we’ll be monitoring 0.4970 as a potential double bottom should NZDGBP consolidate above 0.5000 over the next few trading days.
The market is pricing in an additional ~60bps of hikes from the BoE before the terminal rate is met…..this may be too aggressive given UK inflation is expected to meaningfully recede in the months ahead as last year’s energy price spike no longer contributes to the calculation of annualised inflation.
Should the BoE choose to pause following the May meeting, the pound’s 2023 outperformance likely reverts to the mean.
The economic calendar remains light and US earnings season is yet to deliver major market moving headlines…..there’s not much else to report.
US bond yields continue to grind higher, albeit it in very tight daily ranges.
Despite firmer yields, the Kiwi improved from its European session low a couple of pips above 0.6170, ascending back into the 0.6220’s during the New York morning before easing back near 62 US cents heading into the second half of US trade.
The headline event for the day ahead is 1Q CPI for the local economy, inflation expected to ease from 7.2% in the December quarter to 7.1% having peaked at 7.3% in the June quarter.
A notable deviation from the consensus estimate likely has the biggest impact on the rate sensitive antipodean cross. Marking a 6th week on Tuesday, NZDAUD attempts to find a foothold above 0.92.
The offshore economic calendar is absent any market moving releases….Tesla earnings drop after the closing bell (this morning) and may impact equity index futures given it’s the most heavily traded stock as measured by options volume.
Bold prediction – an in-line or modest upside beat for NZ CPU lifts the Kiwi towards 0.6250.
Daily exchange rates
Select chart tabs
Stuart Talman is Director of Sales at XE. You can contact him here.
We welcome your comments below. If you are not already registered, please register to comment.
Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.