Home Daily Commentaries New Zealand dollar continues to hold above 64 US cents

New Zealand dollar continues to hold above 64 US cents

Daily Currency Update

The New Zealand dollar is slightly stronger this morning when valued against the greenback. The NZD/USD pair closed the week stronger for the fifth successive day on Friday. The momentum lifts spot prices to over a two-month high, around the 0.6465-0.6470 region during the early European session. The Kiwi dollar was supported by a weaker US dollar which struggles to capitalise on the overnight bounce from its lowest level since late June and is stuck in a range on the last day of the week. The uncertainty over the size of the next rate hike by the US central bank seems to act as a headwind for the greenback. Markets are still pricing in at least a 50 bps Fed rate hike at the September meeting. This remains supportive of elevated US Treasury bond yields and offers some support to the USD.

Looking ahead this week and on Monday we will see the release of the Business NZ Services Index which is a survey of purchasing managers which asks respondents to rate the relative level of business conditions including employment, production, new orders, prices, supplier deliveries, and inventories. On Wednesday all eyes will be on the Reserve Bank of New Zealand (RBNZ) Monetary Policy Statement which is forecast to live the official cash rate (OCR) by another 50 basis points from 2.5% to 3%. The bigger question is around what the RBNZ signals for the path ahead. The outlook is becoming more mixed, with activity softening but inflation pressures even stronger than expected. What’s more, financial markets are now trying to front-run the central bank in the other direction, pricing a lower peak in the OCR cycle and a turn to rate cuts as early as August next year. Finally, on Friday Statistics New Zealand will release the Trade Balance figures for the month.

Key Movers

In the United States on Friday we saw the release of the University of Michigan’s Consumer Sentiment. The August reading exceeded market expectations at 55.1, higher than the 52.5 forecasted by the street. Meanwhile, consumer inflation expectations for 1-year decreased from 5.2% to 5%, while 5-year rose above 3%, from 2.9%. The Producer Price Index posted a similar outcome, rising by 9.8% YoY in the same month. Stocks finished the week on solid footing, with traders assessing whether an inflation slowdown could soon make the Federal Reserve reduce the pace of its most-aggressive tightening campaign in decades and prevent a hard landing. The S&P 500 had a fourth straight week of gains, the longest such run since November. The gauge recouped more than 50% of the losses it notched between its January peak and June.

Looking ahead this week in the United States and on Wednesday we will see the release of July Retail Sales, foreseen up by a modest 0.1%, the primary gauge of consumer spending, which accounts for the majority of overall economic activity. On Thursday the US Federal Reserve will release the Minutes of its latest monetary policy meeting providing in-depth insights into the economic and financial conditions that influenced their vote on where to set interest rates. Finally, on Friday we will see the release of US Existing Home Sales an annualised number of residential buildings that were sold during the previous month, excluding new construction.

Expected Ranges

  • NZD/USD: 0.6350 - 0.6550 ▲
  • NZD/EUR: 0.6150 - 0.6350 ▲
  • GBP/NZD: 1.8700 - 1.8900 ▲
  • NZD/AUD: 1.0900 - 1.1100 ▼
  • NZD/CAD: 0.8100 - 0.8300 ▲