NZD outpaces major counterparts as OCR expectations continue to rise
Thursday 18 May, 2023
Daily Currency UpdateThe New Zealand dollar outperformed through trade on Wednesday, outpacing most major counterparts amid renewed demand for risk. Risk sentiment improved through Wednesday as hopes a deal to lift the US debt ceiling appears imminent. After another round of talks, both President Biden and House Speaker McCarthy projected confidence a deal could be struck. Having pushed through US$0.6250, the NZD marked intraday highs north of US$0.6270 before edging marginally lower into the daily close. Having advanced against the USD the NZD also enjoyed gains against key major counterparts, up versus the Euro, GBP, JPY and AUD. Domestic rates continued to climb through trade on Wednesday after the ANZ followed Westpac’s lead, revising its anticipated peak OCR rate. While stopping short of 6%, the ANZ expects the RBNA will need to continue lifting rates through June and July, peaking at 5.75%. With near-term yield pivotal in governing direction the NZD climb back above A$0.94 and tested a break above 86 vs the Yen. Our attentions turn now to the domestic budget. We anticipate a tight budget as weak domestic economic performance and the looming election force the government to cinch the purse strings.
Key MoversHigher risk sentiment supported commodity currencies through trade on Wednesday while the Euro, GBP and Yen failed to keep pace and the USD traded sideways when measured against the broader basket of major counterparts. Hopes a deal can be struck to raise the US debt ceiling bolstered demand for risk, elevating equities treasuries and commodity currencies, while eased fears for the US bank sector helped underpin gains. Western Alliance Bank reported another uptick in deposits, with total deposits up US$1.8 billion since the end of Q1. The news helped drive gains in the KBW banking index and fuel a broader S&P 500 advance. The Euro tracked below 1.0850 while the GBP trended lower before finding support in comments from Bank of England Governor Bailey. Bailey reiterated the Monetary Policy Committee (MPC) Board's commitment to further tightening, suggesting the risks to inflation remain skewed to the upside. With persistent inflation expectations driving up near-term rates, the Yen underperformed allowing the USD to surge through 137 and 137.50 to mark intraday highs at 137.75.
Our attentions turn now US jobless claims, home sales data and a Philly Fed survey on business sentiment.
- NZD/USD: 0.6180 - 0.6320 ▲
- NZD/EUR: 0.5680 - 0.5790 ▲
- GBP/NZD: 1.9880 - 2.0120 ▼
- NZD/AUD: 0.9320 - 0.9420 ▲
- NZD/CAD: 0.8350 - 0.8450 ▲