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NZD Consolidates Sharp RBNZ-Inspired Losses, Greenback Pares Gains

FOREX
  • Wednesday’s currency moves have been dominated by the overnight decline for the New Zealand dollar, falling sharply on the back of a dovish RBNZ decision. These losses gradually extended throughout the course of the day, with NZDUSD consolidating around 1.25% lower as we approach the APAC crossover.
  • The main change from the RBNZ was the more neutral tone to the meeting assessment with November’s more hawkish elements removed. The tone suggested that the RBNZ is happy with where rates are for now. Pre RBNZ the market had attached a 29% chance of a 25bp hike at today’s meeting.
  • NZDUSD has breached the 0.6100 handle and traded as low as 0.6082 and could set the tone for further weakness towards the mid Feb lows near 0.6050.
  • In sympathy, AUDUSD has been dragged lower by its antipodean counterpart move and the generally softer equity tone across the first half of Tuesday’s session. AUDUSD is down 0.72% to 0.6495, close to session lows and notably piercing initial support at 0.6496. An additional headwind for the AUD was the lower-than-expected January CPI outcome which came in unchanged at 3.4% y/y. With kiwi underperforming, AUDNZD is 0.55% higher at 1.0660.
  • Overall, the early weakness for major equity benchmarks on Tuesday supported the USD index to the best levels of the week at 1.0424. However, as US yields edged lower throughout the session and equities recovered, the greenback has been steadily paring its gains as we approach the APAC crossover.
  • The January PCE deflator (out Thursday) will be the last reading of the Fed's preferred inflation gauge before the March FOMC meeting. Before this, Australian retail sales is scheduled overnight, ahead of regional inflation data from the Eurozone, including Germany, Spain and France.
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