Home Daily Commentaries NZD sinks to 2-year low as recession fears amplified

NZD sinks to 2-year low as recession fears amplified

Daily Currency Update

The New Zealand dollar tumbled through trade on Tuesday, giving up supports amid rising fears for global recession and a deterioration in the risk narrative.  With little of note on the domestic ticket the NZD tacked sideways through the local session, bouncing between 0.6200 and 0.6230 before succumbing to a swift downward correction overnight. Commodity prices tumbled and risk appetite evaporated as US investors returning from the 4th of July long weekend adopted a definitive risk off mood. The NZD tumbled through 0.62 and 0.6150 marking intraday and fresh 2 year lows at 0.6125. The global growth outlook continues to sour and with New Zealand’s domestic economic fortunes under pressure there is little to support the embattled NZD at present. Having definitively broken off technical supports near 0.6220 a move toward the psychological 0.60 barrier is now a real possibility. Having recovered back above 0.6150 leading into this morning open our attentions remain with the recession narrative as the key marker for near term direction.

Key Movers

Price action across majors was vicious Tuesday as US investors returned from the 4th of July long weekend in bad mood, forcing risk assets and commodity prices lower amid rising fears for global recession. Haven flows were key with the Yen and Swiss Franc well supported while the USD index surged near 1.5% marking fresh 20 year highs. USD upside came at the expense of the Euro, GBP and commodity currencies. The Euro collapsed on the heels of a surge in Gas prices. Strikes in Norway’s oil fields as workers protest sustained wage softness amplified concerns Europe’s energy crisis will worsen before it improves and sent gas prices toward a 4-month high. With Russia still throttling gas supplies Europe and the euro remain incredibly vulnerable. Having given up 200 points falling from 1.0450 to 1.0250 the Euro has edged back toward 1.03 leading into this morning open. A sustained energy crunch will continue to weight on European growth expectations, while exacerbating inflationary pressures. The risk of European stagflation is rising by the day.

The Great British Pound offered little in the way of resistance slipping below 1.20as the macroeconomic backdrop deteriorates, and Boris Johnson’s government remains in disarray. The resignation of Chancellor Sunak and Health Secretary Javid suggest Johnson’s days in downing street are numbered.

Our attentions today remain with the risk narrative as US services PMI and the Fed minutes dominate the macroeconomic ticket.

Expected Ranges

  • NZD/USD: 0.6080 - 0.6250 ▼
  • NZD/EUR: 0.5940 - 0.6040 ▲
  • GBP/NZD: 1.9280 - 1.9580 ▼
  • NZD/AUD: 0.9020 - 0.9120 ▲
  • NZD/CAD: 0.7950 - 0.8090 ▲