Kiwi clinging to 0.70 US cents as FOMC and Evergrande remain in focus
Wednesday 22 September, 2021
Daily Currency Update
NZD - New Zealand Dollar
The New Zealand dollar stubbornly held above supports at 0.70 US cents through trade on Tuesday, despite a broader risk off tone and general weakness across commodity currencies. Concern surrounding the impending collapse of Chinese property developer Evergrande continues to plague financial markets and while we did see a levelling in risk aversion, uncertainty will dominate direction through the near term. Any news Chinese officials will step in to rescue the beleaguered property giant should help drive renewed risk gains, however the scale and scope of debt restructuring will determine the impact of hangover across risk assets.
Having touched intraday highs at 0.7055 the NZD remains on the soft side leading into this morning’s open. On the domestic front, the release of Assistant RBNZ governor Hawkesby’s speech notes prompted markets to adjust expectations for a 50-basis point hike come October 6. It appears the banks “least regrets” approach will prompt a slow and measured normalisation of monetary policy. A great deal of global uncertainty means a smooth and measured approach to rising interest rates is most appropriate. A repricing of the OIS and yield curve weighed on the NZD.
Our attentions today remain with the underlying risk narrative.
Key MoversRisk aversion continues to plague currency markets, prompting a slide across currencies and sustained demand across haven assets, the USD and JPY. The EUR and GBP offer little net change. The CAD was the day's big mover, weakening amid an ongoing correction in commodity prices and a failed bid from Prime Minister Trudeau to secure a Majority. Having called a snap election, the incumbent Trudeau had hoped to sure up renewed support and secure a majority government and while he retains the top job, he will continue to head a minority government, making it increasingly difficult to progress policy change. The CAD slipped back below 0.78 US cents to touch 0.7787 before bouncing modestly higher into this morning’s open.
Our attentions today remain with the Evergrande saga and any signal the PBOC and Chinese government will offer a liquidity injection to rescue the embattled property giant. Overnight action will be dominated by the FOMC policy update. While we expect little in the way of guidance on tapering of QE we are keenly attuned to the Fed’s updated projections and dot plot polling. Previous forecast saw a number of members bring forward their expectations for interest rate hikes into 2022 and a further move in the median forecast could drive USD support through the near term.
- NZD/USD: 0.6950 - 0.7070 ▼
- NZD/EUR: 0.5920 - 0.6020 ▼
- GBP/NZD: 1.9380 - 1.9620 ▲
- NZD/AUD: 0.9620 - 0.9740 ▲
- NZD/CAD: 0.8920 - 0.9020 ▼