NZD edges downward as risk off mood prompts move away from commodity currencies
Daily Currency UpdateThe New Zealand dollar underperformed through trade on Monday amid a broad risk off mood and rising global bond rates. Global 10-year rates marked new multi-year highs on Monday as equities and commodity currencies bore the brunt of the shift toward haven assets. Chinese equity markets led losses with the Hang Seng Index and CSI300 down 3% on the day as fears rising COVID-19 case numbers will prompt harsher and extended lockdown protocols. New cases have been reported in Guangzhou, a large trade and manufacturing hub, fueling fears port congestions, transport shortages and warehouse closures will only worsen in the coming weeks heaping more pressure on a global supply chain already stretched to breaking point. Having touched intraday lows at 0.6814 the NZD struggled to find momentum drifting between session lows and 0.6850.
Our focus remains with the broader risk narrative as local Business Survey data is expected to confirm a heightened impact of stagflation pressures as inflation indicators rise and confidence falls. With a suggestion the RBNZ could raise rates by 50 basis points later this week today’s print will afford a good insight into just how the domestic economy is performing.
Key MoversThe US dollar outperformed through trade on Monday, advancing against the majority of counterparts as global bond rates continue to rise and a risk off mood pushes markets toward haven assets. While we have seen a consolidation across near team bond yields with 2-year rates consolidating around 2.5% longer dated rates have risen as markets seek to price in a correction and normalisation in monetary policy. Fears a rapid shrinking in the Fed’s balance sheet will mean higher longer-term rate is pushing 10 year bond yields toward multi year highs. European yields were also elevated with German 10-year Bund notes pushing toward their highest level since 2015. The USD found added support amid growing fears Chinese lockdowns will heap even more pressure on a stretched global supply chain. Fears inflationary pressures will linger exacerbated a risk off shift helped fuel demand for haven currencies. That said, the Japanese Yen, traditionally a benefactor of a risk off mood, closed Monday as the days worst performer. The USD reached 7 year highs pushing through 125.50 as a burgeoning gap in monetary policy expectations and yields force markets away from the Yen. The Yen’s underperformance against the USD has seen in give up ground against key crosses as well. With few signs the current cycle will end there is scope for further JPY downside in the near term as sentiment continues to sour.
Our attentions turn now to US CPI data this evening as a key marker guiding Fed decision making through 2022 and beyond.
- NZD/USD: 0.6780 - 0.6880 ▼
- NZD/EUR: 0.6230 - 0.6330 ▼
- GBP/NZD: 1.8980 - 1.9230 ▲
- NZD/AUD: 0.9150 - 0.9250 ▲
- NZD/CAD: 0.8580 - 0.8680 ▲