Home Daily Commentaries NZD outperforms ahead of critical Central Bank updates and key data

NZD outperforms ahead of critical Central Bank updates and key data

Matt Richardson
Written by
Matt Richardson

Matt Richardson

OFXpert

Matt provides expertise in currency risk management to his clients, drawing from his 14 years of experience in foreign exchange.

| Tuesday 30 January, 2024

Daily Currency Update

The New Zealand dollar outperformed through trade on Monday amid a backdrop of lower global rates and improved commodity prices. With little headline news on hand, markets seemed content in adopting a holding pattern ahead of what promises to be a week packed with key risk events.

Oil prices led gains across commodities as markets reacted to the Iran-backed drone strike in Jordan that killed and injured US troops. While the US has said “it is not looking for a war with Iran”, the latest strike served to escalate tensions in the Middle East. Brent Crude is now up 7% through 2024.

While commodities found support, US treasury yields drifted lower allowing the NZD to climb back and extend a break above US$0.61, marking intraday highs just short of US$0.6150 at US$0.6142. While coming off the overnight high, the NZD has found added support this morning following comments from the RBNZ’s Chief Economist, Paul Conway.

Conway suggests that downward revisions in GDP don’t necessarily mean lower price pressures as the impacts of higher migration continue to impact capacity. If the RBNZ is to get inflation back to target it will need to remain committed to tighter policy for longer. The comments bring the February policy statement into sharp focus.

With little on the domestic docket today our attention turns to an all-important Australian Q4 CPI inflation update, China PMI data and a string of key Central Bank Policy updates through the latter half of the week for direction. With so many headline risk events on the docket, we expect sustained volatility as markets continue to adjust implied monetary policy expectations.

Key Movers

While markets largely maintained a holding pattern through trade on Monday the euro pushed lower as traders moved to price in a full rate cut for April. A veritable storm of comments from key ECB officials yesterday and at the weekend heightened expectations policymakers will move to ease conditions earlier than last expected.

While highlighting the importance of data in determining the timing of any policy change, the dovish shift in commentary suggests the ECB is preparing for a cut before the middle of 2024, forcing markets to adjust European rates lower across the board.

The euro traded to session lows below 1.087, dragging the sterling lower ahead of the Bank of England policy meeting this week. While the yen found support, up 0.4% against the USD against the lower rate backdrop. Our attention now turns to China PMI data ahead of the Fed and Bank of England policy updates on Wednesday and Thursday.

With implied monetary policy and rate expectations driving direction, we expect volatility will be elevated through the back half of the week. The question now, who blinks first?

Expected Ranges

  • NZD/USD: 0.6050 - 0.6180 ▲
  • NZD/EUR: 0.5600 - 0.5700 ▲
  • GBP/NZD: 2.0500 - 2.0900 ▼
  • NZD/AUD: 0.9220 - 0.9320 ▲
  • NZD/CAD: 0.8150 - 0.8250 ▲

Written by

Matt Richardson

OFXpert

As a Senior Corporate Client Manager, Matt provides expertise in currency risk management to his clients, drawing from his 14 years of experience in foreign exchange. Matt has clients who he has been working with for over a decade, a testament to his knowledge and dedication in the field. Matt is also a regular contributor on Ausbiz, offering clear and precise updates on currency market trends, showcasing his ability to interpret complex financial data into actionable insights.