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NZD finds supports amid tapering in risk aversion

Tuesday 1 February, 2022

Daily Currency Update

The New Zealand dollar advanced through trade on Monday amid a renewed demand for risk and a broader US dollar correction. Having plunged below 0.6550 leading into the close on Friday the NZD climbed steadily as investors looked to unwind some of last week’s bets, driving equities, commodities and commodity currencies higher. The NZD advanced over four tenths of a percent on the day, bouncing off lows at 0.6540 to touch a session high just shy of 0.66 US cents. With little of note on the domestic ticket, outside trade balance data, our attentions remain with the broader risk narrative while the RBA policy update could add a wrinkle in NZD/AUD forecasts. Despite the rebound the NZD remains under near term pressure and we expect any extension beyond top end ranges will be hard won through February and the lead in to the Fed policy meeting on March 16th.

Key Movers

The US dollar gave up high’s registered at the end of last week as a renewed demand for risk allowed investors to move off haven currencies. The Dollar index fell half a percent as the Euro rallied back above 1.12 and the GBP pushed back toward 1.3450. Stronger than anticipated German inflation data and an end to near term political instability in Italy helped spur demand for the single currency.  The GBP showed little signs Boris Johnson political woe’s were about to spur a further depreciation rallying a quarter percent on the day as markets eye Thursday’s Bank of England policy update and rate statement instead. USD dollar weakness was compounded by commentary from two key Fed policy makers. San Francisco Fed President Daly and Kansas City President George hinted the market may be getting ahead of itself and that a gradual pace of interest rate adjustments was prudent in the current environment, while a focus on balance sheet correction may prove more beneficial in stabilising inflation and allow for a shallower rate hike trajectory. With investors extending bets of Fed rate hikes following Fed Chair Jerome Powell’s comments last week, the fresh insight highlights the division within the Fed when it comes to the best course of action moving forward. Our attentions remain affixed to fed policy updates and commentary as a key driver underpinning the risk narrative.

Expected Ranges

  • NZD/USD: 0.6530 - 0.6650 ▲
  • NZD/EUR: 0.5820 - 0.6020 ▼
  • GBP/NZD: 2.0180 - 2.0480 ▼
  • NZD/AUD: 0.9250 - 0.9370 ▼
  • NZD/CAD: 0.8320 - 0.8410 ▲