Overnight NZ 2yr inflation expectations for Q1 saw a significant tick down to 3.3% from 3.62% in Q4, which has put the bird on the back foot vs AUD. This is an important development ahead of the RBNZ next week, who are doing the best to hike the economy and inflation expectations into submission. Clearly they won’t want to declare an early victory and risk unwinding their good work, but they will be very encouraged by this development. It gives me more confidence in my call that the RBNZ meeting next week will be a bit more dovish than expected, likely with a 50bp hike but opening the door to a much slower path ahead. I’m sticking with AUDNZD longs, looking for a close above 1.10 to make things more interesting. US CPI will dominate proceedings today. I think the risk is finely poised around the number but I’m hoping that the move up in yields recently has gone some way to at least pricing in the higher survey for the print. The market continues to want to trade GBP from the short side, for good reason as it looks like the BoE are coming to an end on their hiking cycle. But UK jobs data came in stronger than expected this morning, with more job gains than expected which saw the pound make brief gains vs EUR. The medium term bearish narrative shouldn’t be as important as positioning on the day and as such GBP could be a decent long on a low print if you expect to stop out some newly minted USD longs.

Maybe faster than expected

Feb 14 2023

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