New Zealand dollar trades below 0.68 U.S. cents
Daily Currency UpdateThe New Zealand dollar closed the week lower on Friday amidst a broadly stronger USD. The Kiwi dollar was down 0.6% ending the week just below 0.68. The NZD/JPY cross-traded above 80 for the first time in almost four months on Friday, before closing the week just below that level. NZ rates continue to trend higher on the back of global forces and building expectations of aggressive RBNZ tightening. The 2-year swap rate briefly touched 3%, before settling 2bps higher on the day, at 2.98%, while the 10-year swap rate jumped 5bps to a new cycle high of 3.22%. There is around 85bps priced into the next two RBNZ meetings, with the market now seeing a better than even chance of 50bps OCR increases at both meetings.
Looking ahead this week and on Monday we will see the release of Visitor Arrivals m/m. On Wednesday we will see the release of the New Zealand Current Account which is directly linked to currency demand. A rising surplus indicates that foreigners are buying more of the domestic currency to execute transactions in the country. Finally, on Friday, we will see the release of the countries quarterly Gross Domestic Product (GDP) which is forecast to rise by 3.2%.
Key MoversLast week the United States reported its February Consumer Price Index which soared to 7.9% YoY as expected, but still a 40-year high. The headline reading came one week ahead of the US Federal Reserve’s monetary policy meeting. The central bank is expected to raise interest rates for the first time since 2018, and policymakers will likely hint at a faster pace of hikes in 2022. Geopolitical turmoil, rising commodity prices and tighter monetary policies are making the perfect combo for continued risk-off trading, which is benefiting the greenback.
The USD experienced broad-based strength on Friday, appreciating against all the G10 currencies except the CAD. The Canadian dollar was the star performer in currency markets on Friday, appreciating 0.3, after a super strong Canadian labour market report. Employment growth was almost three times expectations while the unemployment rate fell a whole 1%, to 5.5%, near its pre-Covid lows. Bank of Canada tightening expectations were ratcheted higher after the report, with the market moving to price a 65% chance of a 50bps rate increase at the next meeting in April and the 2-year bond rate surging 11bps. Looking ahead this week in the United States and the focus will remain on inflation and the central bank’s reaction to it, and the latest update on Retail Sales.
- NZD/USD: 0.6700 - 0.6900 ▼
- NZD/EUR: 0.5650 - 0.5850 ▲
- GBP/NZD: 1.9000 - 1.9200 ▲
- NZD/AUD: 1.0550 - 1.0750 ▼
- NZD/CAD: 0.8350 - 0.8550 ▼