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NZD hits 8 week low as risk off profile and Fed rate hike expectations dominate direction

Tuesday 19 April, 2022

Daily Currency Update

The New Zealand dollar sunk to an eight-week low over the Easter long weekend as demand for risk remains sedate and markets adjust expectations for a Fed rate hike. Rising oil prices and lingering concerns China’s Covid zero policy will only exacerbate supply constraints and global supply chain disruptions have prompted a rise in near term inflation expectations, amplifying fears the global economic recovery will face further delays. As risk demand falters, the USD advanced across the board, emboldened by increasing expectations the Fed and FOMC policy makers will raise rates by 50 basis points next month. Having eyed a break toward 0.70 after the RBNZ monetary policy review earlier this month the NZD has succumbed to a shift in the broader risk profile giving up 0.69 and 0.68 US cents to mark new lows at 0.6715. With the NZD at the mercy of broader moves across bond markets and Fed rate expectations our attentions today turn to commentary from RBNZ Governor Orr as he addresses rising inflation uncertainty and policy makers response.

Key Movers

The US dollar is broadly stronger, advancing amid a risk off profile and rising expectations for a 50-basis point fed rate hike. Bond Yields have risen sharply over the last 2 weeks as markets price in a significant monetary policy tightening following a sustained string of hawkish commentary from key Fed officials. New York Fed John Williams, who is typically aligned with the Fed and FOMC chair Jerome Powell, fueled speculation a faster tightening is on the table suggesting a 50-basis point hike was “a very reasonable option”. His comments all but guarantee the Fed will accelerate the pace of rate hikes next month, highlighting the growing gap between the Fed and other major central banks.  The Euro slipped below 11.08 late on Thursday and remains under pressure opening this morning at 1.0781. The single currency tumbled after the ECB failed to meet market expectations. While affirming bond purchases will end in Q3 they failed to put a end ate or set out a plan for rate hikes other than highlight any adjustment would be gradual. With markets pricing in a more definitive monetary policy profile the ECB failed to provide any clear longer-term guidance instead kicking the can down the road suggesting June’s policy meeting will be key in reassessing forecasts and guiding policy. Markets pared back ECB rate hike expectations pricing in now a less than 50% chance for a July rate hike. With little of note on today’s ticket our attentions remain with rising global inflation concerns, the broader risk profile and bond performance.

Expected Ranges

  • NZD/USD: 0.6690 - 0.6820 ▼
  • NZD/EUR: 0.6190 - 0.6280 ▼
  • GBP/NZD: 1.9230 - 1.9420 ▲
  • NZD/AUD: 0.9130 - 0.9230 ▲
  • NZD/CAD: 0.8450 - 0.8550 ▼