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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.

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

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

Soft NZ inflation expectations yesterday saw the kiwi under pressure dipping from 0.9135 (1.0950) areas to 0.9070 (1.1025) this morning against the Australian Dollar (AUD) and the only time it’s closed under 0.9100 since November last year. NZ January house prices declined a further 3.5% from December to January taking the national median down 16.2% from the high. Upcoming on the docket is Aussie employment data as we head into next week’s key RBNZ rate announcement and policy statement. On the chart we see massive support at 0.9000, through here and the cross could target the fib level at 0.8950 (1.1170).

The current interbank midrate is: NZDAUD 0.9065 AUDNZD 1.1024
The interbank range this week has been: NZDAUD 0.9067- 0.9151 AUDNZD 1.0927- 1.1028

Tuesday 14/02
3PM, NZD, Inflation Expectations q/q
Previous: 3.62%
8PM, GBP, Claimant Count Change
Forecast: 17.9K
Previous: 19.7K
8PM, GBP, Average Earning Index 3m/y
Forecast: 6.20%
Previous: 6.40%

Wednesday 15/02
2:30AM, USD, CPI m/m
Forecast: 0.50%
Previous: -0.10%
2:30am, USD, CPI y/y
Forecast: 6.20%
Previous: 6.50%
2:30AM, USD, Core CPI m/m
Forecast: 0.40%
Previous: 0.30%
2PM, AUD, RBA Gov Lowe Speaks
8PM, GBP, CPI y/y
Forecast: 10.30%
Previous: 10.50% Read more

Key Points:

Overnight risk mood dims with the US Dollar bouncing back.
Following the RBA hike of 25 points Tuesday to 3.35% Lowe expects a further 2 interest rate rises in the coming months.
Bank of England’s Bailey expects inflation to come down fast this year, but further rate hikes are on the agenda.
The Bank of England hiked interest rates 50 points to 4.0% with the voting 7-2 in favour and the central bank indicating inflation has turned. Read more

After a decent fall from 0.7150 late last week in the Australian Dollar (AUD), US Dollar (USD) pair we have seen price move off an early week 0.6850 mark to push towards 0.7000 where it has met resistance overnight. Risk waned and equity markets posted losses taking the Aussie back to 0.6940 as I write. Building Permits were up in December compared to November but helping the AUD higher but overall sentiment was the difference. Tuesday’s RBA policy meeting also pushed the currency higher for a while after the RBA hiked interest rates from 3.10% to 3.25% signalling further interest rate grief was to come. Earlier forecasts had priced in just one more rise of 25 points, but now the cap looks to have shifted from 3.6% to 3.85%. The central bank also said they predicted inflation to slip from the current 7.8% to 4.75% by the end of 2023. We expect to see further upside in the cross, but first getting through solid resistance at 0.7150 will be tough. Next week’s Australian jobs numbers and US Inflation are the key releases.

The current interbank midrate is: AUDUSD 0.6935
The interbank range this week has been: AUDUSD 0.6854- 0.7010

Choppy moves this week in the New Zealand Dollar (NZD), US Dollar (USD) cross ensured a reasonably directionless week of action with pair trading around the weekly open of 0.6330 this morning. Attempts to push through 0.6400 resistance failed overnight with risk sentiment waning and the kiwi falling back. US bond yields are being closely watched as the 2 year and 10 year diverging to a 45 year range represents a tightening market and an early view of a potential recession. Recent Fed expectations of just one further hike to interest rates looks unlikely as two further increases look possible. Powell did however say deflationary signs are starting to appear with moderate growth predicted for 2023. We are not yet ready to shift our view to bearish just yet. Movement however through 0.6220 may change this. A bounce to 1.0960 in overnight trading suggests the recent move towards 0.9000 (1.11) ran out of steam, however we still support the cross tracking lower.

The current interbank midrate is: NZDUSD 0.6324
The interbank range this week has been: NZDUSD 0.6269- 0.6388

The steady long term bear momentum in the Australian Dollar (AUD), New Zealand Dollar (NZD) has continued well into 2023 with price reaching 0.9065 (1.1030) Thursday a late October 2022 low from 0.9550 (1.0470) mid-December. Lower highs followed by lower lows have been the trend of late with recent Aussie strength stemming from a 25-point hike to the RBA interest rate taking it to 3.35%, the eighth straight monetary policy hike since May last year. Reviewed expectations of inflation see it coming off 7.8% all the way down to 4.75% this year and to around 3% by mid-2025. We may see the current momentum stall out towards 0.9000 (1.1000) but fundamentally long term we could be pricing in the high 80’s

The current interbank midrate is: NZDAUD 0.9123 AUDNZD 1.0956
The interbank range this week has been: NZDAUD 0.9067- 0.9175 AUDNZD 1.0898- 1.1029