NZD/USD bulls are in the market ahead of US CPI
- NZD/USD is a touch off the highs but buoyed by US Dollar softness.
- US CPI is the next key data event with eyes on the Fed next week.
NZD/USD is higher at the start of the week, up some 1.65% at the time of writing after climbing from a low of 0.6134 and reaching a high of 0.6264 on the day so far. Risk currencies that are high beta to equities such as the antipodeans have been rebounding sharply from their four-month lows as the collapse of Silicon Valley Bank has been met by resolve from the US regulators and Federal Reserve in order to safeguard depositors.
As a consequence, the US Dollar has struggled in the face of sinking bond yields amid the SVB fallout. The two-year note was paying as low as 3.997% at one point in New York trade and fell from the start of the week´s highs of 4.534% in the most significant one-day drop since the financial crisis of 2008.
Additionally, Fed funds futures have been repriced as traders expect that the Fed's terminal rate will be lower. Markets are now pricing as low as 4.14% for December which was originally priced above 5% on Friday. Moreover, futures are showing a 21% chance of no hikes in rates from the Federal Open Market Committee when announcements will be made on March 22.
´´Contagion fears are high and bond markets have taken the view that the Fed will hike just once more, and then start cutting by September, presumably on the view that confidence and spending will hit a brick wall,´´ analysts at ANZ bank explained.
´´That’s possible, but of course, the inflation starting point is problematic. The point is there are a lot of ifs and buts, and more volatility seems likely in Consumer Price Index data tonight. New Zealand considerations have been well and truly relegated to the background, and this is the USD show. Positioning, and the need to be nimble, are likely to dominate the economics for now.´´
It is worth noting that the Reserve Bank of New Zealand raised interest rates by 50 basis points in a widely anticipated move at its February meeting. The RBNZ has hiked the OCR by a total of 450 basis points in ten consecutive meetings and the rate now stands at a 41-year record of 4.75%.