NZD poised to test new lows as China headlines dominate direction
Daily Currency Update
The New Zealand dollar remains vulnerable to further risk-off moves, standing on shaky ground amid growing concern surrounding the state of China’s economy. Equities fell during trade on Friday, with the Hang Seng leading losses with key indices marking their lowest level this year. While Chinese policymakers announced a series of reforms designed to boost confidence across capital markets, the moves offered little support to risk assets.With the yuan failing to make inroads against the USD, despite state banks now stepping up their support at the directive of the PBOC, the NZD dipped toward US$0.5910 and looked set to test Thursday low at US$0.5908, before finding support and trading sideways into the weekly close.
With little of note on the docket today, our attentions remain with China as the source and driver of the risk demand. After a steep decline over the last 2 weeks, the NZD remains vulnerable to further risk aversion. With sentiment a key driving force in this environment we are looking for signals from Chinese authorities they are willing to expand stimulus measures.
Key Movers
Equities appeared to bear the brunt of Friday’s risk-off move with price action across currencies somewhat muted. The USD consolidated the week's gains, marking a remarkable recovery since collapsing in the wake of the July CPI print. The Dollar index edged upward, while the yen outperformed all other G10 currencies.Core inflation jumped another tenth of a per cent in July, up to 4.3% in what is the fastest acceleration in price pressures seen in Japan for mover than three decades. The surprise uptick heaped more pressure on the BoJ to move away from its ultra-easy monetary policy footing and helped bolster demand for the US, having broken above 146.50, the USD retreated back below 145 before finding support.
In other news, the euro failed to break back above 1.09 while the GBP continues to track between 1.26 and 1.28. With little of note on the docket this week our attentions turn to global PMI data ahead of the Jackson Hole Symposium on Monetary policy, where we look to Fed Chair Powell and ECB President Lagarde for forward guidance on future policy decisions.
With sentiment a driving force in the current environment, China headlines remain critical in governing direction.
Expected Ranges
- NZD/USD: 0.5880 - 0.5980 ▼
- NZD/EUR: 0.5400 - 0.5500 ▼
- GBP/NZD: 2.1280 - 21620 ▲
- NZD/AUD: 0.9200 - 0.9300 ▲
- NZD/CAD: 0.7980 - 0.8080 ▼