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NZD Slips as Markets Speculate May Hike Could be Last of Cycle

FOREX
  • NZD sits at the bottom end of the G10 pile, as the soft CPI release overnight drove market-implied expectations for monetary policy notably lower. Q1 CPI slowed to 1.2% against expectations of a 1.5% print, helping prompt a number of sell-side outfits to redraw expectations around the May interest rate hike possibly being the last in the cycle.
  • NZD/USD traded through the 200-dma support in response, pulling back to a fresh April low of 0.6149. Support undercuts at 0.6140 ahead of the March low at 0.6085.
  • EUR/NOK continues to grind higher, hitting a new cycle best at 11.6341 today and the highest since Apr'20. The moves today will be adding pressure to the already weaker-than-expected imported-weighted I44 rate used by the Norges Bank in policy-setting. Yesterday's I44 close of 121.15 was decidedly above the Bank's March projection of 119.50 for Q2 (Dec MPR forecast was 110.73), meaning a convincing NOK rally will have to follow in order to prevent the Bank revising their FX forecasts further still at June's forecast round and will add further pressure to the bank to raise rates again at the May 4th meeting.
  • Key upside level in EUR/NOK crosses at 11.7486 - the 61.8% retracement for the 2020-2022 downleg and could come into play should the Apr'20 high of 11.6966 give way.
  • CHF and the EUR trade better on an intraday basis, but both currencies are generally respecting the recent ranges.
  • Weekly jobless claims data are the highlights of the data calendar, although the Philly Fed Business Survey could draw focus. Existing home sales data are expected to show near-term fragility in the housing market, although Eurozone consumer confidence is seen improving on the margin.
  • Central bank speak is thick and fast Thursday, with no fewer than 6 ECB speakers, 5 Fed speakers, 2 from the Bank of Canada and a BoE MPC member on the docket. Of the lot, most focus will likely be paid to Fed's Logan, a voter and neutral member of the FOMC, and ECB's Holzmann, who will likely retain the recent hawkish tilt.
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