Daily Currency Update
The New Zealand dollar offered little to excite investors through trade on Friday, tracking within what has become a familiar range as market attention drifted to what promises to be a week loaded with headline data events. After receiving a boost leading into the close last week on reports Mediation between Israel and Hamas led by Qatar was moving quickly toward a cease fire the NZD dipped on open after tension escalated at the week and any positive build up in risk sentiment unraveled. Having traded as high as US$0.5845 the NZD begins the week back near US$0.58 buying US$0.5815 at the time of writing. With today’s macroeconomic agenda light on detail our focus shifts to Chinese PMI data and the Bank of Japan policy meeting on Tuesday and local labour market data and the FOMC policy update on Wednesday for direction. Recent Chinese data points to a stabilising in the economic downturn, and although we are still a long way off traditional growth metrics a moderation in China's economic fears should help add a floor beneath the NZD. With the Fed expected to leave rates on hold and the BoJ tipped to end its Yield curve control program there is scope for the USD to pare recent upside and help the NZD stave off a consolidated break below supports at US$0.5770.
Key Movers
There is plenty to digest on this week’s agenda with the Bank of Japan, Federal Reserve, and Bank of England all set to proffer monetary policy updates while key Chinese PMI data and US non-farm payroll numbers round out the macroeconomic ticket. The key question though, will materially change the current narrative and USD momentum. The USD has enjoyed support through September and October on the heels of rising global geopolitical concerns and a surge in treasury yields with long positions building toward levels reflective of a cap in real USD value. While this might suggest further upside will be limited it doesn’t mean an immediate reversal and correction is imminent. We expect the Bank of Japan will announce an end to its Yield Curve Control program this week taking some of the heat out of recent USD/JPY upside and prompting a move back below 150. While this will add some downward pressure on the USD DXY index the divergence in US and European yields and economic outlooks should be enough to offset any USD/JPY downturn with the Euro facing more near-term headwinds. We next turn to the Fed policy meeting Wednesday, and while we expect policy markers will leave rates on hold, citing tightening financial conditions, a robust labour market (affirmed in Friday’s payroll numbers) and stubbornly sticky inflation, led by the service sector, should ensure the prospect of a rate hike in the coming months remains firmly on the table. With the Bank of England expected to leave rates on hold as it battles stubborn inflation pressures and a faltering growth outlook, the GBP could eye a break back toward 1.20. All in this week offers ample scope for volatility and we are keenly attuned to each data point and update in shaping medium term forecasts.
Expected Ranges
- NZD/USD: 0.5770 - 0.5850 ▼
- NZD/EUR: 0.5480 - 0.5550 ▼
- GBP/NZD: 2.0750 - 2.0950 ▲
- NZD/AUD: 0.9120 - 0.9220 ▼
- NZD/CAD: 0.7950 - 0.8120 ▲