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NZD proves resilient in face of USD recovery

Thursday 6 October, 2022

Daily Currency Update

The New Zealand dollar proved remarkably resilient through trade on Wednesday, staving off a broader US dollar correction and outperforming most major counterparts. As anticipated, the Reserve Bank of New Zealand (RBNZ) lifted rates by 50 basis points while offering a slightly more hawkish tone than first anticipated. Policy makers noted a 75-point move had been discussed in a bid to control inflation pressures and potentially help to lower the eventual peak interest rate. The sustained hawkish lilt proffered by the RBNZ suggests another 50-point rate hike will be issued next month before a correction in the pace and speed is adopted. The NZD lurched upward in the moments following the RBNZ policy update touching intraday highs at US$0.58 before edging lower through the afternoon and early overnight trade. A robust US ISM services print helped ease US recession fears and drove a surge in US rates and the US dollar. Having touched session lows below US$0.5675 the NZD fought off a significant downward correction, recovering to trade marginally above US$0.5750 on open. Our attentions turn now to more Fed central bank speak and the European Central Bank's (ECB's) latest meeting minutes ahead of US non-farm payroll data Friday for direction into the weekly close.

Key Movers

The US dollar was the standout performer through trade on Wednesday, recovering much of the week's early losses following a stronger than anticipated ISM services print. The Bloomberg Dollar Spot Index (BBDXY) index jumped 0.7% as the euro fell short of breaking back above parity and slipped back below €0.99 while the GBP gave up ground falling near 1.5% to £1.1315. The robust services print alleviated fears the US economy may be on the brink of recession. Softer than anticipated, manufacturing data had sparked fears a broader slowdown was underway, elevating calls for the Fed to pivot away from its aggressive program of rate hikes. The uptick in services activity instead suggests consumers are simply transitioning back to the service economy and away from manufactured goods as we re-open after the pandemic. Strength across the service economy helped fuel a resurgence in US rates while Fed officials remain steadfastly committed to the current pace of rate adjustments. San Francisco Fed President Daly commented, "it would be really challenging to slow the pace of rate hikes when core inflation continues to rise", suggesting another supersized 75-point hike will be delivered next month. As the dollar recoups the week's early losses, our attentions turn to more Fed commentary and the European Central Bank (ECB) policy meeting minutes ahead of Friday's all-important non-farm payroll print. With labour market performance critical in shaping Fed and USD direction, we expect markets will sideline major bets until after this data release.

Expected Ranges

  • NZD/USD: 0.5650 - 0.5800 ▼
  • NZD/EUR: 0.5680 - 0.5850 ▲
  • GBP/NZD: 1.9620 - 2.0050 ▼
  • NZD/AUD: 0.8780 - 0.8880 ▲
  • NZD/CAD: 0.7720 - 0.7850 ▲