Home Daily Commentaries NZD falters amid risk off mood and global bond market sell off

NZD falters amid risk off mood and global bond market sell off

Daily Currency Update

The New Zealand dollar fell through trade on Thursday giving up US$0.62 and sliding back toward US$0.6150 amid a surge in global bond yields and a definitive risk off shift. The NZD looked set to extend and consolidate a break above US$0.62 trending steadily upward through the domestic session and reaching US$0.6220 midway through overnight trade before correcting sharply lower. US ISM services data printed well above expectations, while an ADP employment report showed payrolls surged at their fastest pace in nearly 12 months elevating US 2-and-10-year bond yields and prompting investors to price in additional Fed rate hikes. A definitive risk off tone enveloped markets through the back half of the overnight session and while the NZD rebounded off lows it was unable to garner any real momentum and opens this morning buying US$0.6160.

Our attentions turn now to US non-farm payrolls. While we expect labour market growth will have slowed, the robust ADP employment read affords the possibility of a print beyond market estimates. A strong read will enable a further extension in the weeks bond sell off and drive-up fed rate hike expectations, possibly forcing the NZD back below US$0.61, while a softer print could help fuel a reversal and elevate the NZD into the weekly close. We expect the NZD to track between US$0.6080 and US$0.6250.

Key Movers

Lower risk appetite and a surge in global bond rates has seen commodity currencies underperform and the USD recover losses suffered early in the day. The dollar had trended lower through the Australasian session and looked set to extend losses into the weekly close, before an ISM services report and ADP employment data shocked investors, printing well above consensus estimates. The service sector rose 3.6pts, underpinned by strong gains in the employment index. When coupled with the robust ADP employment print, market concerns labour market conditions remain too strong if inflation is to continue tracking toward target were elevated. The service sector and labour market appear impervious to the Fed’s aggressive program of monetary policy tightening, lifting peak fund rate expectations and ensuring a rate hike is all but priced in later this month. While higher two and ten year rates helped the USD recover early losses, European and UK yields surged higher as well allowing the euro to track back toward 1.09 and sterling to consolidate a move above 1.27.

Despite the stronger rates backdrop the yen found support as a risk asset, while comments from BoJ deputy Governor Uchida helped fuel expectations a tweak in policy makers ultra easy monetary policy platform may be forthcoming. The USD gave up intraday highs above 144.50 and open this morning back nearer 144.

Our attentions turn now to US non-farm payrolls. While we expect labour market growth will have slowed, the robust ADP employment read affords the possibility of a print beyond market estimates.

Expected Ranges

  • NZD/USD: 0.6080 - 0.6250 ▼
  • NZD/EUR: 0.5620 - 0.5720 ▼
  • GBP/NZD: 2.0450 - 2.0850 ▲
  • NZD/AUD: 0.9250 - 0.9350 ▲
  • NZD/CAD: 0.8180 - 0.8280 ▲