Home Daily Commentaries NZD struggle continues as USD broadly stronger

NZD struggle continues as USD broadly stronger

Daily Currency Update

The New Zealand dollar tracked lower through Monday, continuing the early 2024 trend amid a broadly stronger USD. With US markets closed in observance of Martin Luther King Jnr Day investors appeared content in extending the current narrative, forcing the NZD to give up more of the gains won in late December amid the exaggerated USD sell-off.

The NZD has been among the worst performers through the year to date as markets wrestle with the timing and trajectory of US Federal Reserve rate cuts. A string of stronger-than-expected US data sets and broadly higher global rates has forced investors to reconsider the timing of the first FOMC rate cut, pairing expectations for a reduction in the headline rate in March and instead pushing back hopes for change into H2.

Having slipped below US$0.62 the NZD tested a break below US$0.6185 overnight before finding support and moving back toward US$0.62 leading into this morning's open. Our attentions turn now to commentary from Fed policymaker Christopher Waller. Waller is well respected among Fed commentators and his comments could prove key in guiding market expectations for Fed policy change.

Key Movers

With US markets closed for the Martin Luther King Jnr Day public holiday attention shifted to European yields and ECB policy expectations. European Central Bank officials pushed back against market expectations for rate cuts in the first half of the year, suggesting policy will remain restrictive, potentially through 2024 and into 2025, despite sustained falls in macro indicators.

German GDP data contracted through Q4 while industrial production plunged in the 12 months to November amplifying market calls to announce a rate cut. Instead, ECB officials countered, marking June as the earliest point to consider a rate adjustment.

With ECB officials steadfast in their commitment to the current policy platform, markets were forced to wind back implied rate cut expectations allowing the euro to advance against a broadly stronger USD. While the euro edged higher the USD index closed higher on the day.

A backdrop of higher global rates forced the JPY to give up 0.7% while commodity currencies continued to struggle with the CAD, AUD and NZD all lower and the GBP slipped back below 1.2750. Our focus turns now to UK Labour market data and Fed commentary, as Governor Christopher Waller hits the wires. Implied policy expectations will continue to dominate direction. Waller's economic outlook and policy expectations could prove key in shaping market pricing.

Expected Ranges

  • NZD/USD: 0.6150 - 0.6250 ▼
  • NZD/EUR: 0.5620 - 0.5720 ▼
  • GBP/NZD: 2.0300 - 2.0600 ▲
  • NZD/AUD: 0.9250 - 0.9350 ▼
  • NZD/CAD: 0.8280 - 0.8380 ▼