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NZD rallies as currency markets shrug aside risk off move

Thursday 17 February, 2022

Daily Currency Update

The New Zealand dollar advanced through trade on Wednesday as currency markets appeared immune to a broader risk-off shift that plagued other financial instruments. Equities and bonds fell as uncertainty surrounding tensions between Russia and Ukraine escalated. A broader USD decline allowed the NZD to push comfortably back above 0.66, breaking above 0.6650 and touching intraday highs at 0.6685. With little of note on today’s ticket, our attentions remain affixed to the correlation between the risk narrative and currency markets. With the USD unable to capitalise on the overnight risk-off move and long-run metrics suggesting the world’s base currency is grossly overvalued, we will be looking for any signal that suggests recent USD momentum may be shifting.

Key Movers

Price action across major currencies moved against the broader risk-off trend with the USD DXY index giving up 0.3%, while traditional risk-lead currencies enjoyed strong upside. The inflation theme continued with UK and Canadian CPI data both surprising to the upside. Headline inflation in the UK marked 5.5%— its highest level in 30 years, with next month's figure expected to print even higher as household energy costs and core food prices continue to rise. Canada’s CPI surged through 5% firming bets for a long series of rate hikes beginning with a 25 basis point hike next month. The pound pushed through 1.3550 to test 1.36 while the CAD eyed a break above 0.79. With markets now pricing broad monetary policy change across major central banks, the momentum behind the USD appears to be faltering. Long-run metrics suggest the currency is overvalued and with inflation in the US outpacing other major economies there is a concern this will act as a handbrake on growth as we move into Q2, 3 and 4. Our attentions today turn to the Fed’s latest FOMC policy meeting minutes, with a key focus on balance sheet reduction.

Expected Ranges

  • NZD/USD: 0.6570 - 0.6730 ▲
  • NZD/EUR: 0.5830 - 0.5930 ▲
  • GBP/NZD: 2.0150 - 2.0450 ▼
  • NZD/AUD: 0.9250 - 0.9320 ▼
  • NZD/CAD: 0.8390 - 0.8520 ▲