Foreign exchange trading reminder: CPI data is less than expected, the New Zealand dollar fell to a new low of more than a month, the dollar wants to break through the 21-day moving average resistance

The New Zealand dollar fell slightly against the US dollar, falling 0.7% at one point, hitting a new low of 0.6155 since March 16. Therefore, the previously released data showed that New Zealand's CPI in the first quarter was significantly lower than expected, reducing the pressure on the Reserve Bank of New Zealand to raise interest rates. The US dollar index rose slightly by 0.21% on Wednesday. Although it was still suppressed by the resistance near the 21-day moving average of 102.12, the possibility of breaking the resistance in the afternoon market volatility has increased, as Federal Reserve officials continue to send signals to the market for further interest rate hikes.

At the beginning of the Asian market on Thursday (April 20), the US dollar index fluctuated narrowly and is currently trading around 101.98. However, the New Zealand dollar fell slightly against the US dollar, falling 0.7% at one point to a new low of 0.6155 since March 16. Therefore, the previously released data showed that New Zealand's CPI in the first quarter was significantly lower than expected, reducing the pressure on the New Zealand Federal Reserve to raise interest rates. The US dollar index rose slightly by 0.21% on Wednesday. Although it is still suppressed by the resistance near the 21-day moving average of 102.12, the possibility of breaking the resistance in the market outlook has increased, because the Federal Reserve officials continue to send signals to the market for further interest rate hikes.

New Zealand consumer inflation was lower than expected in the first quarter, but remained close to record highs as prices for everything from food to new home construction rose, according to data released on Thursday.

The consumer price index (CPI) rose 6.7 percent in the first quarter from a year earlier, in line with the fourth quarter, Statistics New Zealand said in a statement. But it was down from a 30-year high of 7.3 percent in the second quarter of 2022.

The first-quarter CPI rose 1.2% from the previous quarter, down from 1.4% in the fourth quarter. Market survey estimates for the quarter-on-quarter and year-on-year were 1.7% and 7.1%, respectively.

Inflation is a major challenge for the Reserve Bank of New Zealand, which has raised interest rates to 5.25 per cent from a record low of 0.25 per cent in October 2021. The central bank has signalled further rate rises in an attempt to ease price pressures and lower inflation expectations.

Statistics New Zealand said in a statement that the main drivers of annual inflation were rising food prices and the construction of new homes.

"Inflation is still at levels not seen since the 1990s," said Nicola Growden, senior price manager at Statistics New Zealand.

Statistics New Zealand added that non-trade year-on-year inflation was 6.8 percent, still at its highest level since 1999. (over)

Financial website Forexlive analyst Eamonn Sheridan pointed out that New Zealand Quarter 1 inflation is lower than expected, but still at a high level. The market expects the Reserve Bank of New Zealand to raise interest rates by 25 basis points at its May meeting, and the inflation data does not seem to be enough to affect this.

The New Zealand dollar fell nearly 50 points after the release of New Zealand's first-quarter CPI data, hitting a low of 0.6155, a new low since March 16. The New Zealand dollar fell slightly against the dollar on Wednesday by 0.08 to close at 0.6199.

The dollar index rose 0.21% to close at 101.95 on Wednesday as the market became more skeptical that the Federal Reserve would cut interest rates later this year.

The yield on the two-year Treasury note, which is sensitive to the Federal Reserve's monetary policy expectations, rose 7 basis points to 4.269 percent, hitting a one-month high of 4.286 percent.

Inflation in the US remains "too high" and the Fed will act to reduce price pressures, said Mr. Williams, president of the New York Fed, which could take two years to reach its 2 per cent target.

But Bipan Rai, head of North American FX strategy at CIBC Capital Markets in Toronto, said: "The dollar's rally is" a temporary respite, and we still think the dollar will continue to face considerable pressure in the medium to long term. It's tied to our view that the Fed could raise rates one more time and then it's over. "

According to CME's FedWatch tool, interest rate futures show an 85.7% chance of a 25 basis point rate hike when Fed policymakers end their two-day meeting on May 3. But the odds of a rate cut before December have narrowed significantly this week.

Rai said the dollar has been on the defensive for some time now as Congress' debt ceiling issue remains unresolved and deposit migration in the U.S. banking system remains a concern.

Joe Manimbo, a senior market analyst at Convera, said the near-term outlook for the dollar is not optimistic given that foreign central banks are expected to raise interest rates more than the Federal Reserve for the rest of the year.

"If it takes longer for core inflation to return to the Fed's 2 per cent target, then perhaps the Fed will have to raise rates more than once this year," he said, adding that this could halt or slow the dollar's slide.

"It's just a very volatile situation for the currency market right now until we have some clearer sense of the policy outlook."

The pound was relatively strong against the dollar among non-U.S. currencies on Wednesday, closing at $1.2438 in New York, up 0.13 percent on the day, as U.K. inflation stayed above 10 percent in March and put more pressure on the Bank of England to continue raising interest rates.

Wednesday's data showed that UK consumer price inflation fell to 10.1% in March from 10.4% in February, a smaller-than-expected decrease.

"It looks like the UK CPI reading above 10 per cent is to blame. This has renewed fears that interest rates in the UK - and Europe - will remain high for longer," said Fawad Razaqzada, market analyst at City Index.

Deutsche Bank raised its forecast for UK interest rates on Wednesday, arguing that the Bank of England will raise interest rates twice more, each by 25 basis points. Morgan Stanley now forecasts another hike, and possibly a second.

The dollar rallied 0.46 per cent against the interest-rate-sensitive yen on Wednesday, hitting an intraday high of 135.13 since March 10 and closing near 134.67. The Bank of Japan is widely expected to maintain its current interest rate unchanged as expectations of a Fed rate hike heat up.

Thursday's key economic data and risk events

institutional perspective

TD Securities: The Bank of Japan will never act when the market expects it

TD Securities pointed out that we believe the probability of imminent action by the Bank of Japan on yield curve control (YCC) has diminished, and also believes that the Bank of Japan will never act when the market expects it. TD Securities said, "Based on this, we believe it is worth expecting a small upside in the yen ahead of this month's BoJ meeting, although we recently stopped short bets on USD/JPY (although we will consider re-buying) ".

Moody's: The outlook for highly indebted companies is cloudy

Moody's, the rating agency, said it had moved more highly indebted companies to the bottom of its junk rating and that the likelihood of debt defaults was rising as funding conditions tightened. The number of companies rated negative or lower by Moody's on B3 rose to 227 in Quarter 1 2023, up 4 per cent from the fourth quarter of 2022 and a full third from Quarter 1 2022, according to two Moody's reports. That was the highest quarterly figure since August 2021 but still below the peak of the pandemic. Moody's cited rising debt, weak profitability and price pressures as reasons for the downgrade. "Given the difficult credit environment and market volatility, we expect the [list] to continue to grow in size," the analysts wrote in one of the two reports. Most of Moody's rating changes have been caused by the Federal Reserve's rate hikes, which have raised the cost of financing for companies, especially those that have borrowed heavily, such as those owned by private equity firms.

TD Securities: Wage growth and CPI support further interest rate hikes by the Bank of England

TD Securities analysts said that this week's strong wage and CPI data suggest that underlying inflationary pressures in the UK are more persistent than previously expected. We revised our expected path for the Bank of England interest rate and expect a final 25 basis point hike in June, bringing the final rate to 4.75% (currently 4.50%), with strong prices supporting long sterling.

Fidelity: Credit crunch'biggest threat 'to economic outlook

① The biggest threat to the economic outlook is that the credit crunch has yet to filter through the financial system, a senior official at Fidelity Investments told the European Equity Conference on Wednesday. Recession risk is a key topic for asset managers, hedge funds and traders gathered in Paris for the traexamh equity trading conference.

The failure of two U.S. lenders and a forced takeover by Credit Suisse rattled financial marekt in March, with a sharp sell-off in bank stocks further tightening lending conditions and stoking fears of a global economic downturn.

③ Roman Bocher, chairperson of the board of directors of Fidelity Investments, manages about $4.50 trillion in assets and the "biggest threat" to the economy is a "real and obvious credit crunch," he told the conference.

④ Fidelity's Mr. Bocher says there will be a marked slowdown in the US and Europe, where tougher economic conditions and higher interest rates have changed portfolio priorities for asset managers. Equities remain an effective hedge, at least compared with government bonds

Goldman Sachs: The European Central Bank may raise interest rates three times this year by 25 basis points;

① Analysts led by Jari Stehn said in a report released on Tuesday that the ECB's governing council would raise interest rates by 25 basis points each in May, June and July, adding that the likelihood of 25 basis points or 50 basis points at next month's meeting was "very close";

② They said: "With stronger data, including some easing of signs of further deterioration in bank lending conditions and stronger inflation data for April, a 50 basis point rate hike is very likely."