NZD punches back amid pause in risk asset sell-off

Daily Currency Update

The NZD finished flat on Wednesday, clawing back losses suffered in the wake of the RBNZ policy announcement amid a pause in the bond market and risk asset sell-off. The NZD plunged through US$0.59 and toward intraday lows at US$0.5870 following the RBNZ monetary policy meeting. Officials elected to leave the cash rate unchanged at 5.5% while offering little amendment to the August statement. In an environment wherein central banks are preparing for rates to remain higher for longer, maintenance of the status quo was seen as dovish. While the RBNZ did suggest “interest rates may need to remain at a restrictive level for a sustained period” it offered little in the way of new commentary, subsequently falling short of market expectations.

Having marked a new weekly low, the NZD then found support amid a weaker USD. US Services ISM data printed in line with expectations while ADP employment data came in softer than anticipated. While not an entirely accurate marker of final non-farm payroll numbers, the softer read does speak to the narrative of a weakening labour market and when coupled with a downturn in oil prices, easing near-term inflation concerns and the risk of a US government shutdown, markets are preparing for the possibility the Fed will not raise rates again this year.

Attention now turns to Friday’s Non-Farm Payroll print. Labour market performance will prove key in determining the near-term narrative. A robust print and labour market resilience will all but guarantee another Fed rate hike in 2023 but a softer read will force the market to take stock and may undermine recent USD strength.