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Daily FX Market Review: New Zealand Dollar Rises After Data Shows Inflation Remains Far Too Strong

October 18, 2022| Forex Market

The New Zealand dollar jumped today after the latest inflation report exceeded expectations.

New Zealand’s annual CPI ran at 7.2% in the third quarter. While this was down slightly from 7.3% in the previous quarter, the market consensus was looking for just a 6.6% rise so this was much hotter than expected! 🔥

Such a high inflation reading keeps New Zealand’s inflation at a 32-year high and increases the probability of further aggressive hikes by the Reserve Bank of New Zealand (RBNZ) this year.

In the aftermath of the COVID-19 epidemic, the RBNZ was one of the first major central banks to begin monetary tightening.

Since October last year, the RBNZ has raised interest rates by 3.25% and continues to signal that it will increase the cash rate further until inflation is under control.

It’s probably the only thing that Adrian Orr, RBNZ’s current Governor, thinks about…

Adrian Orr, RBNZ Governor, fighting inflation

Now that the data shows that inflation isn’t slowing down as expected, market participants now expect that the RBNZ will need to move more quickly to regain control of prices, and will have to raise the cash rate by 0.75% (75 bps) next month.

If that happens, interest rates will have risen 4% in 12 months, which would be the country’s sharpest rise ever!

Since a hawkish monetary policy typically supports the currency, this is why the New Zealand dollar strengthened against all major currencies today.

For example, this is NZD against CAD today:

NZD/CAD | 10/18/2022

Not familar with interest rates and how it affects currencies? Read our lesson, Why Interest Rates Matter to Forex Traders.

Let’s review what else happened in the FX market today…

Currency Market Movers

Which currency pairs gained the most today?

As shown by our FX Market Movers page, NZD/CAD was the leader of the pack, gaining 1.14% or 88 pips.  🏆

Top FX Gainers | 10/18/2022

Which currency pairs lost the most today?

GBP/NZD was the biggest loser, falling 1.33% or 269 pips! 😢

In contrast to yesterday, where the British pound rose after the new finance minister decided to scrap the majority of the government’s “mini-budget”…

It was the opposite today!

After having another day to digest this news, market participants realized that this may actually result in the Bank of England not raising interest rates as aggressively as previously anticipated and decided to dump the pound causing it to close lower than yesterday.

Top FX Losers | 10/18/2022

Currency Strength

What was the overall strength or weakness of individual major currencies today?

Based on the Currency Strength Meter on MarketMilk™, NZD was the strongest currency. 💪

The GBP was the weakest currency.

Currency Strength | 10-18-2022

Look at how NZD strengthened against all major currencies:

NZD Pairs Strength

NZD Pairs | 10/18/2022

Currency Short-Term Trends

When it comes to short-term trend strength, the New Zealand dollar is now showing bullish strength, along with the British pound (GBP) and the euro (EUR).

The Japanese yen (JPY) continues to shows the most bearish strength.

AUD, CAD, and CHF are also trending bearish but are weakening.

Currency Trend Strength | 10-18-2022

Currency Volatility

Which currency was the most volatile today?

Based on our Currency Volatility Meter, it’s the New Zealand dollar (NZD). 

Currency Volatility | 10/18/2022

Which currency pair was the most volatile today?

Given that NZD was the most volatile currency, it has to be an NZD pair. But which one?

GBP/NZD. It moved over 1.86% or 368 pips! 

Most Volatile Currency Pair | 10/18/2022

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