NZD underperforms as cracks emerge in domestic outlook
Wednesday 12 April, 2023
Daily Currency UpdateThe New Zealand dollar underperformed through trade on Tuesday giving up ground not only against the USD but key major crosses. Despite a downward USD correction, the NZD failed to hold onto US$0.62, sliding to intraday lows below US$0.6190. With no obvious catalyst for the downturn we expect the move simply reflects a shift in funding flows ahead of a key macroeconomic update, however, we may finally be witnessing the impact of domestic factors. New Zealand is currently carrying a large and widening current account deficit, is mired in recession and is facing growing fears the RBNZ has been overtly aggressive, overtightening too quickly, pushing the economy into a longer and deeper economic slump. As if compounding losses suffered against the USD the NZD slipped to its lowest level against the pound since October, while marking 28-month lows against the euro and falling back toward $0.93 against the AUD.
Our attentions turn now on US CPI data this evening. We anticipate a decline in headline CPI this evening, thus any sign price pressures haven’t peaked will likely prompt an outsized market response and weigh heavy on the NZD.
Key MoversThe US dollar retreated through trade on Tuesday as markets looked to square positions following the Easter break and leading into a key US CPI inflation update. With the USD drifting downward the euro, GBP and CAD all enjoyed modest gains while the JPY tracked sideways. Having enjoyed a boost in the wake of another robust US labour market print the USD faltered following a survey of small business conditions that showed tougher lending conditions, a decline in confidence, a fall in capital spending expectations and a downturn in hiring expectations. The survey supports a slew of recent headline data events that suggest activity is pitching toward recessionary levels. With commentary from Fed policy makers now mixed the outlook for monetary policy remains clouded. New Fed member Goolsbee proffered a dovish soundbite overnight, suggesting recent banking sector instability is equivalent to 25-75 points of fed tightening, warning policy makers should be conscious of raising rates too aggressively in this environment. Goolsbee’s comments contrast with New York Fed President Williams who suggested that another rate hike in May was a good starting point, acknowledging the inflationary impact on household budgets still remains elevated with core price pressures largely unchanged. Our attentions turn now to tonight’s all-important CPI update. A correction in inflation in line with expectations could amplify calls for the Fed to consider pausing its tightening cycle while an upside surprise and signal price pressures have not yet peaked will give the Fed license to extend this rate hike cycle fueling near-term USD upside.
- NZD/USD: 0.6120 - 0.6320 ▼
- NZD/EUR: 0.56250 - 0.5730 ▼
- GBP/NZD: 1.9820 - 2.0180 ▲
- NZD/AUD: 0.9280 - 0.9380 ▼
- NZD/CAD: 0.8280 - 0.8420 ▼