NZD tests year to date lows amid rising expectations for US soft landing
Daily Currency Update
The New Zealand dollar remains under pressure, retesting year-to-date lows at US$0.5860, both through the domestic session and overnight amid ongoing concerns surrounding the China economy and stronger US services data. The NZD tested supports at US$0.5860 as risk sentiment wavered amid growing Chinese economic concerns.With no new data on hand to shift the narrative, markets remain wary of the sustained slowdown in momentum and absence of significant fiscal stimulus. China officials have to date offered only incremental policy tidbits in response to the rapid slowdown in economic activity, leaving markets wanting and driving the Chinese yuan lower.
Despite the PBOC setting its strongest daily fix (when measured against market analyst expectations) since 2018, the CNY remains under pressure against the USD, adding more downward pressure on the NZD as a major proxy. Having underperformed against the USD, the NZD is also lower against the AUD and euro, while finding some support against the GBP.
Our attention now turns to US unemployment claims as a key marker of labour market performance and Fed policy expectations, while China headlines continue to influence risk demand.
Key Movers
The US dollar edged higher on Wednesday following stronger-than-anticipated US ISM services data. The latest report showed service sector activity accelerated in August, underpinning a narrative of US economic resilience. With key subcomponents within the report, all rising market expectations for a peak Fed funds rate lifted marginally, although the likelihood of anything but a pause later this month still remains a slim possibility, instead, markets are positioning for a 25-point hike in November.With the dollar gathering momentum, the euro plunged toward 1.07 while the sterling slipped below 1.25, marking a fresh 3-month low. Comments from Bank of England Governor Andrew Bailey drove cable below key supports amid expectations the bank may be nearer to its peak interest rate setting than markets anticipated.
With the USD consolidating near 6-month highs, our attention turns to weekly unemployment claims as a key marker of labour market performance and Fed policy expectations.
Expected Ranges
- NZD/USD: 0.5850 - 0.5990 ▼
- NZD/EUR: 0.5450 - 0.5520 ▼
- GBP/NZD: 2.1100 - 2.1400 ▼
- NZD/AUD: 0.9150 - 0.9230 ▼
- NZD/CAD: 0.7980 - 0.8080 ▼