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Rising Rate Differentials Underpin NZD/USD Rally

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NZD/USD has risen over 2% in recent sessions. The Fed rate hike cycle repricing, in the wake of the collapse of SVB and Signature Bank, has seen the 2-Year Rate Differentials observed via swap spreads widen by ~83bps to levels last seen in late May 2022.

  • NZD/USD found support below $0.61 firming as much as 3% from 2023 lows before moderating gains, this comes as rates markets re-price expectations for the Fed rate hiking cycle.
  • Fed dated OIS has ~30bps of hikes priced into what is left of the hiking cycle, with ~15bps hike priced for March. The terminal rate is now seen at ~4.8% in May. There are over 90 bps of cuts priced in before the end of 2023.
  • 2-Year Rate Differentials now sit at +109bps, with 2-Year Swap spread now the widest since late May 2022 when the NZD/USD was ~3 cents higher.
  • Bulls look to break the 200-day EMA at $0.6265 having met resistance ahead of the level yesterday. Bears first look to break 2023 lows at $0.6085.
  • Today's US CPI print presents the next macro risk event.

Fig 1: NZ US 2 year Swap Spreads v NZD/USD Daily Spot

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NZD/USD has risen over 2% in recent sessions. The Fed rate hike cycle repricing, in the wake of the collapse of SVB and Signature Bank, has seen the 2-Year Rate Differentials observed via swap spreads widen by ~83bps to levels last seen in late May 2022.

  • NZD/USD found support below $0.61 firming as much as 3% from 2023 lows before moderating gains, this comes as rates markets re-price expectations for the Fed rate hiking cycle.
  • Fed dated OIS has ~30bps of hikes priced into what is left of the hiking cycle, with ~15bps hike priced for March. The terminal rate is now seen at ~4.8% in May. There are over 90 bps of cuts priced in before the end of 2023.
  • 2-Year Rate Differentials now sit at +109bps, with 2-Year Swap spread now the widest since late May 2022 when the NZD/USD was ~3 cents higher.
  • Bulls look to break the 200-day EMA at $0.6265 having met resistance ahead of the level yesterday. Bears first look to break 2023 lows at $0.6085.
  • Today's US CPI print presents the next macro risk event.

Fig 1: NZ US 2 year Swap Spreads v NZD/USD Daily Spot

Keep reading...Show less