Home Daily Commentaries Risk aversion forces NZD back below 0.63 US cents

Risk aversion forces NZD back below 0.63 US cents

Daily Currency Update

The New Zealand dollar fell through trade on Wednesday, unable to sustain a push above US$0.6350 amid an uplift in risk aversion. Tuesday’s improved risk appetite proved short-lived as investors quickly retreated toward haven assets overnight following another round of poor US earnings results. A downturn in activity across major US retailers, Target, Walmart and Lowes proved a reality check for markets, highlighting just how damaging the current inflationary environment can be. A sharp correction across key equity indices spilled over into currency markets driving investors toward the USD, JPY and CHF and forcing the NZD back below 0.63 US cents. Added pressure came in the form of a weaker Chinese yuan. Reports foreign investors have dumped over 30 billion in CNY denominated bonds through the first four months of the year spooked markets. The erosion of China’s yield advantage and the softening economic outlook suggest further currency weakness in the near term. With the NZD seen as a proxy to the yuan, ongoing weakness adds another headwind limiting NZD upside.

Key Movers

Safe Haven’s carried the day with the USD, CHF and JPY all finding support amid a correction in risk sentiment. Poor US earnings results elevated fears surrounding the impact of high inflationary pressures and prompted a correction across the S&P 500 and Nasdaq. The S&P 500 closed down 4% a move that permeated currency markets and elevated the JPY and CHF by more than 0.5%, with the CHF finding added support following a rare hawkish shift from Central Bank head Thomas Jordan. While inflation remains low in Switzerland Jordan suggested policymakers were ready to act and tighten rates should inflationary pressures begin rising. With the euro on the soft side and haven support fueling demand for the USD, the dollar index edged higher on the day while the British pound was the day's worst performer. The pound gave back gains won following stronger than anticipated labour market data after CPI inflation surged to a 40-year high of 9%. Concerns Britons Purchasing power is being eroded by the rapid rise in living costs coupled with a much weaker growth outlook there is a fear the UK may be headed for recession.

With only second-tier data on hand, this evening's direction will stem from the broader risk narrative.

Expected Ranges

  • NZD/USD: 0.6250 - 0.6380 ▼
  • NZD/EUR: 0.5980 - 0.6050 ▼
  • GBP/NZD: 1.9450 - 1.9750 ▼
  • NZD/AUD: 0.9020 - 0.9080 ▲
  • NZD/CAD: 0.8080 - 0.8180 ▼