Kiwi underperforms as global rates rise again
Daily Currency UpdateThe New Zealand Dollar corrected lower Thursday, giving up over 100 points as one of the worst performing major currencies. Q4 GDP data printed well below expectations and although outdated serves as timely reminder of the struggles the NZ economy is facing in building on Q3 momentum and pushing forward through the recovery. GDP printed at minus 1% q/q prompting some analysts to push back forecasts for a 2022 rate hike and adding downward pressure on the NZD. Having turned lower toward the end of the domestic session the Kiwi slumped overnight as price action across treasuries drove a push toward the USD. The 10 year bond rate broke above 1.75 for the first time in over 20 years in what was a delayed reaction to Wednesday’s FOMC policy update. Breaking below 0.72 the NZD made intraday lows at 0.7160 and currently buys 0.7164 US cents.
Attentions remain affixed to yield prices and the risk narrative and expect the NZD will remain range bound between 0.71 and 0.7250 through the short term.
Key MoversThe USD managed to recoup half the losses suffered in the wake of the FOMC policy announcement, advancing across the board amid an uptick in 10 year US treasury rates. Price action surged in what was a delayed reaction to the Fed’ policy meeting pushing through 1.7 toward 1.75 as expectations for inflation and higher real rates grows.
Having failed to consolidate a break back above 1.20 the Euro corrected back toward 1.19, marking intraday lows at 1.1907. A divergence in real rates and mounting concerns the suspension of Astra Zeneca from the broader immunisation program will put Europe’s recovery even further behind key counterparts.
The Great British Pound and Japanese Yen, held their ground against the dollar’s advance with Sterling holding onto gains approaching 1.40 and the JPY forcing the dollar back below 109.
Attentions today turn to the Bank of Japan policy update. Having recently reviewed monetary policy we would not be surprised if policy makers amend the current platform in a bid to ensure financial conditions remain accommodative through the medium term. We expect Governor Kuroda will highlight the banks willingness to ease policy settings further if financial conditions continue to tighten.
- NZD/USD: 0.7100 - 0.7250 ▼
- NZD/EUR: 0.5980 - 0.6070 ▼
- GBP/NZD: 1.9220 - 1.9580 ▲
- NZD/AUD: 0.9180 - 0.9290 ▼
- NZD/CAD: 0.8890 - 0.9010 ▼