Ahead of the Fed’s policy update this morning, net market movements have been contained. An early rally in US equities faded and the US 10-year rate remain tightly range-bound. JPY and EUR are weaker overnight while the NZD has been steady in the low 0.60s.
Yesterday, President Trump got the attention of currency markets when he added to US dollar downside pressure after telling reporters he was not worried about the recent decline in the currency, saying “No, I think it’s great”. Overnight, Treasury Secretary Bessent has attempted to row back that comment, reaffirming that the US always has a strong dollar policy. He added that the US is “absolutely not” intervening in dollar-yen.
Trump’s comments drove the USD DXY index down towards 95.55, its lowest level since early 2022 before the move faded. During that fall, major FX rates reached new milestones, including the NZD hitting a six-month high around 0.6050. The currency has spent most of the overnight session oscillating around 0.6030. Bessent’s comment on the yen has seen USD/JPY recover 80pips to 153.60, now well up from yesterday’s low of 152.10. NZD/JPY has recovered to 92.6.
The euro is also on the soft side of the ledger, with the stronger euro catching the eye of ECB officials. France’s Villeroy de Galhau said “we are closely monitoring this appreciation of the euro and its possible consequences in terms of lower inflation…this is one of the factors that will guide our monetary policy and out decisions on interest rates over the coming months”. This followed similar comments by the Austrian CB Governor. EUR is down about 150pips from yesterday’s high to 1.1930 and NZD/EUR breached 0.5050 overnight.
The Bank of Canada held its policy rate unchanged at 2.25% for a second consecutive meeting, as expected. The statement conveyed little change to the outlook and a neutral policy bias, noting the outlook was vulnerable to unpredictable US trade policies and geopolitical risks. Market reaction was muted and the market essentially sees policy on hold through 2026.
Yesterday, Australian CPI inflation data were a touch higher than market expectations and the quarterly trimmed mean measure, which the RBA focuses on, rose 0.9% q/q and 3.4% y/y, suggesting core inflation continuing to run above target. Combined with the recent fall in the unemployment rate, many believed these data were enough to seal an RBA hike next month.
All four major bank economists are now picking a rate hike and OIS rates nudged higher to imply about a 75% chance of a 25bps hike. However, views are mixed as to whether there will just be a single “insurance hike” or further hikes will be required. This was reflected in 3 and 10-year rates actually falling after the release and the move has been extended overnight. Since the NZ close, the Australian 10-year bond future is down about 6bps in yield terms.
After spiking above 0.7020 following Trump’s comments yesterday, the AUD has settled below 0.70. NZD/AUD dipped below 0.86 after the inflation report and has recovered back to 0.8625.
The bias for NZ rates yesterday was higher, interrupted briefly when lower Australian rates spilled over, before that effect faded into the close. Swap rates rose to fresh highs for the year, with the 2-year and 10-year rates both rising 3bps to 3.15% and 4.24% respectively. NZGB yields showed a similar move, rising 2-4bps across the curve.
At 8am NZ time the US Fed will release its latest monetary policy announcement, where all 91 economists in the Bloomberg survey expect no change following three successive rate cuts. Policy is expected to be on hold over coming meetings and this should be reflected in Chair Powell’s comments. The meeting ought to pass with muted market rection. Ahead of the meeting, US Treasury yields have traded a tight range and the 10-year rate is currently 4.25%, up a couple of basis points from the NZ close.
US equities opened stronger and the S&P500 traded above 7000 for the first time before falling back. In early afternoon trading the index is little changed. Amazon announced an additional 16,000 corporate employee layoffs, following 14,000 cuts in October, totalling 30,000 or 10% of its corporate workforce.
Gold continues its strong run with the spot price breaching the USD5300 mark. Oil prices have traded at a fresh four month high, with Brent crude up as high as USD68.50 per barrel before falling back below USD68. Trump threatened military action against Iran, saying “…time is running out” to reach a deal and “…the next attack will be far worse!”
There are only second tier data releases today. NZ’s annual trade deficit should continue to narrow while it’s hard to see much more upside in confidence from the ANZ business survey, from prevailing historically optimistic levels. In the US, jobless claims and trade data are released.
Daily exchange rates
Select chart tabs
Stuart Ritson is a Markets Strategist at BNZ Markets.
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.