NZD rallies amid downturn in US manufacturing activity and UK policy u-turn
Tuesday 4 October, 2022
Daily Currency UpdateThe New Zealand dollar rallied through trade on Monday as risk assets and commodity currencies lurched upward following a reversal in UK Fiscal stimulus plans and a softer than anticipated US manufacturing print. Global rates tumbled after UK chancellor Kwarteng unsurprisingly walked back plans to abolish the countries top tax rate. When reviewed in the context of the total tax cut proposal the abolition of the 45% tax threshold was never a significantly costly measure. It was however, hugely symbolic and indicative of just how ill directed, out of touch and misguided the Truss governments new policy framework was. The reversal in policy helped ease tensions and allowed the NZD to outperform most major counterparts, advancing 2% on the day. Having recovered much of Friday’s sell-off and move into oversold territory the NZD climbed back through US$0.57 marking intraday highs at US$0.5725.
Our attentions turn now to tomorrow’s RBNZ Monetary policy review. We expect another 50 basis point rate adjustment. Terminal cash rate expectations have been pushing higher in recent weeks and we anticipate the RBNZ will need to maintain an aggressive pace of rate hikes if it is to curb inflation pressures.
Key MoversThe Great British pound again dominated price action across major currencies through trade on Monday, surging as UK Chancellor Kwarteng walked back plans to abolish the 45% tax threshold. Sterling advanced a further 1% on the day and surprisingly has recouped all losses suffered in the wake of the mini-budget announcement. Having surged back above 1.13 Sterling touched intraday highs at 1.1325 and currently buys 1.1319.
The US dollar fell to start the week following a deeper than expected downturn in manufacturing activity. The ISM manufacturing index fell to its lowest level since mid-2020 and appears poised to move into contractionary territory as consumers adjust their spending patterns, moving away from manufactured goods and back toward services. While a change in spending patterns was always due as the economy rebalances after the pandemic the concern for the US economy is a shift in inflationary pressures away from manufactured goods and into the services sector. Persistent economic wide inflation will be key in shaping near term Fed policy expectations and our attentions turn to ISM services data and Non-farm payroll data this week as key markers of direction.
- NZD/USD: 0.5580 - 0.5780 ▲
- NZD/EUR: 0.5720 - 0.5780 ▲
- GBP/NZD: 1.9580 - 1.9980 ▼
- NZD/AUD: 0.8680 - 0.8820 ▲
- NZD/CAD: 0.7680 - 0.7850 ▲