NZD outperforms as USD gives back gains amid debt ceiling concern
Tuesday 16 May, 2023
Daily Currency UpdateThe New Zealand dollar outperformed through trade on Monday, buoyed by a broadly weaker USD and elevated demand for commodity currencies. After pitching below US$0.62 last week, the NZD clawed back losses and is again well entrenched within a familiar trading band, bouncing between US$0.62 and US$0.6250 to start the week.
With little headline newsflow on hand to drive direction, a marginal improvement in risk appetite appeared enough to sink the USD and lift the NZD off last week’s low. The USD began the new week on the back foot, reversing gains, as markets look to adjust technical positions ahead of key data updates and a potential end to debt ceiling negotiations.
With Biden and McCarthy locked in talks, there is growing hope an eleventh-hour deal will be struck, but with every day the US moves one step closer to default. Sustained uncertainty should ensure price action remains choppy through the near term.
Our attention turns today to domestic rates pricing. With domestic yields enjoying modest gains yesterday, service performance data suggests the economy is on the brink of recession, elevating calls for the RBNZ to end its tightening cycle. However, an increase in migration has some analysts concerned inflation pressures will linger, forcing the RBNZ to maintain its aggressive tightening bias.
Westpac lifted its peak OCR estimate to 6% on Monday, suggesting policymakers will continue lifting rates until August before announcing a pause in policy change through the rest of 2023.
With NZD yields key in driving direction against key crosses, we are keenly attuned to rate performance this week.
Key MoversThe US began the new week on the back foot, giving up gains won last week, amid a modest improvement in risk appetite, as hopes a resolution to debt ceiling concerns will be found.
President Biden and House Speaker McCarthy remain locked in negotiations to raise debt limits and markets appear increasingly confident an eleventh-hour deal will be struck despite McCarthy suggesting both sides remain “far apart”.
With the debt ceiling likely to remain in the headlines until a deal is struck (most likely in early June), price action will remain choppy as markets adjust technical support, resistance levels and positioning.
In other news the yen was the worst performer through trade on Monday, slumping amid the improved yield and rates backdrop while the euro and GBP edged upward on the heels of USD softness.
Our attention remains affixed to debt ceiling talks, while European and UK labour data, European GDP estimates, Canadian CPI and US retail sales round out a crowded macro ticket.
- NZD/USD: 0.6180 - 0.6320 ▲
- NZD/EUR: 0.5680 - 0.5780 ▲
- GBP/NZD: 1.9920 - 2.0220 ▼
- NZD/AUD: 0.9250 - 0.9350 ▼
- NZD/CAD: 0.8320 - 0.8430 ▲