NZD plunges as risk aversion mounts
Wednesday 27 April, 2022
Daily Currency UpdateThe New Zealand dollar tracked lower through trade on Tuesday, unable to hold above 0.66 US cents amid mounting concerns surrounding the global growth outlook and a broadly stronger USD. With COVID-19 case numbers rising in Beijing there are fears China’s capital will be forced into lockdowns mirroring those already in Shanghai as China continues to pursue its COVID-Zero policy. Sustained lockdowns are expected to exacerbate recent supply chains struggles, elevating global inflationary pressures and crippling the global growth outlook. Mounting fears have prompted a correction across key commodities while expectations for tighter monetary policy continue to constrain equity markets and highly sensitive risk assets. Having slipped below 0.66 US cents, the NZD marked new intraday lows at 0.6560 perilously close to its year to date low at 0.6530. The NZD remains vulnerable to the broader correction in risk demand and shift in sentiment and a sustained risk-off run coupled with Fed tightening expectations will weigh on the NZD and likely suppress any significant uptick leading into the Fed policy meeting next month.
Key MoversThe USD continues its upward surge, buoyed by a sustained risk-off shift and expectations the Fed is committed to an aggressive path of monetary policy tightening. The dollar index pushed above 102 for the first time since March 2020 up 0.6% on the day and closing in on a five-year high. The euro fell a further 0.6% eyeing a break below 1.07 as gas prices spiked on reports that Russia will immediately cut gas supply to Poland lest they agree to make payments in Rubles, something Poland has so far refused to do. Poland collects over half of its required gas reserves from Russian pipelines but is not 100% reliant on Russian sourced gas. The fear now is that Russia will employ a similar tactic on other European states more reliant on Russian supply. With energy prices already under pressure, another uptick in gas prices will all but guarantee another surge in inflationary pressures potentially tipping the euro area into recession as the rising cost of living expenses drain consumer confidence. The GBP offered little resistance to the USD upside falling another 1%.
Our attentions today are affixed to Australian CPI data while global risk sentiment will steer direction across the board.
- NZD/USD: 0.6530 - 0.6630 ▼
- NZD/EUR: 0.6120 - 0.6220 ▼
- GBP/NZD: 1.9050 - 1.9250 ▼
- NZD/AUD: 0.9150 - 0.9250 ▼
- NZD/CAD: 0.9380 - 0.9480 ▲