The EUR/NZD currency pair extended gains on Tuesday, as traders awaited the Euro Area’s preliminary CPI inflation data for May due out later in the day. The new figures could provide further clues over the European Central Bank’s monetary policy trajectory.
Consensus expectations are for headline CPI to rise 3.2% year-on-year in May, while core CPI is projected to increase 2.4% over the same period.
ECB Executive Board member Isabel Schnabel argued that the central bank should move ahead with an interest rate hike in June, even if US peace talks with Iran are successful.
She highlighted that the conflict had lasted significantly longer than anticipated and that elevated energy prices were increasingly affecting the wider economy.
And, ECB policy maker Francois Villeroy de Galhau again underscored that the central bank “will do what is necessary” to ensure inflation remains in line with its target.
Market pricing indicates that investors have already factored in two increases in the ECB’s 2% deposit facility rate and assign nearly a 50% probability to a third hike over the coming year.
At the same time, the New Zealand Dollar received solid support last week on expectations that the Reserve Bank of New Zealand will pursue an ultra-hawkish monetary policy stance to curb inflation.
RBNZ Governor Anna Breman indicated that policy rates were likely to rise sooner and by more than previously signaled in order to fight inflation.
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