NZD underperforms as risk sentiment sours
Thursday 16 February, 2023
Daily Currency UpdateThe New Zealand dollar fell through trade on Wednesday giving up US$0.63 amid souring risk sentiment and a broadly stronger US dollar. Having opened near US$0.6350 the NZD fell steadily through the domestic session as risk demand faltered and investors appeared reluctant in extending gains amid a backdrop of higher global rates and near-term monetary policy uncertainty. With little of note on the domestic ticket attentions appeared wholly absorbed by the shift in narrative surrounding global central bank rate expectations. The fallout from the February 3rd US payroll and services print continues to reverberate among equity and rate markets, spilling into currencies. With the NZD already on the back-foot attentions turned to the keenly anticipated US retail sales data. Consumer spending jumped 3% in January, suggesting demand in the US remains strong. The upturn in activity surpassed consensus estimates and helped drive GDP expectations, bond yields and rate estimates higher. Sustained strength across the labour market, key services and consumer demand have elevated expectations for Fed policy as market adjust forecasts, expecting rates to remain elevated for longer. The NZD slid below US$0.63 touching intraday lows south of US$0.6260 before finding support. Down 1.5% on the day the NZD is now only marginally above the 2023 low and appears increasing vulnerable to near term downward pressure.
Key MoversThe US dollar outpaced all majors through trade on Wednesday elevated by stronger than anticipated domestic data and a souring in risk demand. US retail sales lurched upward in January surpassing consensus estimates and defying suggestions consumer sentiment is wavering. Retail spending jumped 3% while housing data improved and manufacturing tracked higher. The balance of stronger data has prompted analyst to lift US GDP expectations, fueling an uptick in bond yields and rates. The narrative has shifted and there is now a broadly held expectation interest rates will remain elevated for longer. 2 and 10 year yields rose forcing a downturn across key equity indices and risk assets. The negative risk backdrop and higher global rates hurt commodity currencies and the Yen. The JPY gave up more ground to the USD as the worlds base currency pushed through 134 JPY. The Euro slipped below US$1.07 while the GBP was one of the days worst performers down 1.4% on the day. UK CPI inflation fell more than markets anticipated but still remains shockingly high at 10.1% While there is a expectation The Bank of England will need to maintain interest rate pressure in order to control inflation through the medium term UK yields fell on the day, widening the yield differential and exacerbating the GBP downturn. Having given up US$1.21 and US$1.2050 the GPB found support on moves below 1.20 and opens this morning marginally above 1.2025. With little of note on today’s macroeconomic ticket our attentions turn to commentary from key Fed policy makers.
- NZD/USD: 0.6250 - 0.6350 ▼
- NZD/EUR: 0.5850 - 0.5920 ▼
- GBP/NZD: 1.9080 - 1.9320 ▼
- NZD/AUD: 0.9050 - 0.9120 ▲
- NZD/CAD: 0.8380 - 0.8460 ▼