Home Daily Commentaries NZD continues to relinquish last week’s gains in the face of USD rebound

NZD continues to relinquish last week’s gains in the face of USD rebound

Friday 21 July, 2023

Daily Currency Update

The New Zealand dollar tracked lower through trade on Thursday as risk sentiment softened following stronger than anticipated US labour market data. Having maintained a narrow range through the early hours of the domestic session the NZD pitched back above US$0.63, following the AUD higher after stronger than expected employment data and a higher setting of the CNY reference rate by the Peoples Bank of China. Having touched intraday highs at US$0.6310 the NZD faltered, sliding back through US$0.63 and $0.6250 to mark intraday lows at US$0.6210. US labour market data remains too strong for comfort as jobless claims fell to a two-month low, suggesting labour market conditions are strong enough to withstand additional rate hikes. US treasuries rallied and equities and other risk assets fell as the USD worked to recoup last week’s oversold move. Markets have firmly rejected the NZD’s bid to extend gains beyond US$0.64 and we expect ranges will be contained through the near term.

Our attentions turn now to Japan CPI data. We expect inflation will remain comfortably above the BoJ target range and add more pressure on policy makers to move away from the current yield curve control program. A strong read could weigh on NZD/JPY and exacerbate any risk off move.

Key Movers

The USD was broadly stronger through trade on Thursday, continuing the retracement of last week's oversold move following stronger than anticipated labour market data. US jobless claims printed lower than anticipated, falling to the lowest level in two months, lifting expectations for another robust non-farm payroll print and affording the Fed and FOMC license to continue lifting interest rates without fear of derailing labour market resilience. The USD DXY index jumped half a percent as the dollar forced the euro back below 1.1150 and sterling below 1.29, while pushing back above 140 against the yen.

Outside USD gains, the other major move on the day came from the CNY as the PBOC set the largest premium into the reference rate since November, ramping up its campaign to defend the flattened currency. With additional prudential measures employed to support the yuan, the USD has slipped back below 7.18 from 7.23.

Our attentions turn now to Japan CPI data as the only major item on the macro docket leading into the weekly close. We expect core inflation will print at or near 4.2%. Another strong read above the BoJ’s target will increase pressure on policy makers to move away from yield curve control policy when they meet next week.

Expected Ranges

  • NZD/USD: 0.6180 - 0.6320 ▼
  • NZD/EUR: 0.5580 - 0.5650 ▲
  • GBP/NZD: 2.0200 - 2.0700 ▼
  • NZD/AUD: 0.9150 - 0.9300 ▼
  • NZD/CAD: 0.8150 - 0.8300 ▼