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.
New Zealand Retail Sales fell 0.6% for the quarter ending December which represents downside risks to 4th quarter overall growth (GDP) due for release on March 16th, the RBNZ need to see a decent cooling before they think inflation will ease. Recent US inflation ticked slightly lower from 6.5% y/y to 6.4% y/y as predicted, this will most likely keep the Federal Reserve on schedule to raise rates in the coming months, the next release is due 23rd of March.
As the RBNZ hikes their interest rate, more so than it’s playing partners we would expect to see the NZD buoyant over the medium term across most main currencies.
Key Points:
• Central Bank policy decisions due for release in March. RBA 7/3, BoJ 8/3, ECB 16/3, FED 22/3, BoE 23/3
• ECB’s Lagarde thinks another 50 points hike this month is necessary.
• Australian CPI due tomorrow will be nervously followed with predictions of it ticking higher than the current 7.8% y/y
• Fed member Mester says the Fed interest rate will go higher than 5% and stay above this mark for a long period of time.
• Russia halts the Druzhba oil pipeline to Poland supplying 10% of the total oil to the country. This comes a day after Poland delivered the first Leopard tanks to Ukraine.
• The US Dollar (USD) has been the best performing currency throughout February while the Japanese Yen (JPY) is the weakest.
Major Announcements last week:
RBNZ raises interest rates 50 points to 4.75%
US New Home Sales up 67.0 vs 66.4
Canadian CPI prints at 5.0% vs 4.9% y/y