NZD falters amid an uptick in US wages and waning risk appetite
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Daily Currency Update
The New Zealand dollar underperformed through trade on Tuesday amid stronger US treasury yields and waning risk sentiment. Equities and risk assets fell after a US employment cost index report showed wages grew more than expected in Q1 elevating concerns the Fed will need to further delay interest rate cuts. Having softened during the local session the NZD extended losses overnight and traded back below US$0.59.Our attention now turns to domestic Q1 employment data. We expect to see a 0.3% uptick in employment growth through Q1 while the unemployment rate is expected to rise to 4.2%. Further softening in the labour market is expected as population growth and migration continue to outpace job growth while the RBNZ stability report could provide key guidance on future policy moves ahead of the all-important Federal Open Market Committee policy update.
Key Movers
The US dollar rebounded through trade on Tuesday, outperforming major counterparts following stronger than anticipated wage data and a jump in treasury yields. Risk sentiment faltered and equities fell near 1% on the day after the Employment Cost Index report (the Fed’s preferred measure of wage inflation) rose by 1.2% in quarter one. With market estimates pricing in just a 1% increase the robust print elevated concerns sticky wages and price pressures could further delay the Fed’s rate-cutting cycle and may force policy makers to proffer one final rate hike. US treasury yields spiked with 2-year yields back over 5%, while 10-year yields jumped 5 basis points. The DXY index rose 0.5% on the day with the euro performing well compared with other majors amid higher than expected GDP data while the yen was weaker against the dollar marking intraday highs at ¥157.82.Our attentions turn now US labour market data ahead of the Fed’s Federal Open Market Committee policy update. We expect the Fed will leave rates on hold and will likely reiterate concerns surrounding upside inflation shocks. With no new economic projections anything short of a surprise shift in sentiment should mean price action remains well contained.
Expected Ranges
- NZD/USD: 0.5850 - 0.5980 ▼
- NZD/EUR: 0.5480 - 0.5580 ▼
- GBP/NZD: 2.1000 - 2.1400 ▲
- NZD/AUD: 0.9050 - 0.9150 ▼
- NZD/CAD: 0.8080 - 0.8180 ▼