Home Daily Commentaries Kiwi staves off break below 0.61 as investors square USD gains

Kiwi staves off break below 0.61 as investors square USD gains

Daily Currency Update

The New Zealand dollar crept higher through trade on Tuesday, pushing off recent lows as markets look to square USD gains and adopt a more measured tone leading into tonight’s all-important US inflation print.  With little of note on yesterday’s domestic ticket attentions remained affixed to broader global headwinds. Reports China’s daily Covid case count is again on the rise and elevated fears Europe’s energy crisis will plunge the continent into recession weighed on investors’ appetite for risk and sent the NZD toward 0.61 US cents. Having eyed a break below this handle the NZD found support, extending back toward 0.6150 before edging lower into this morning’s open.

Our attentions turn now to the RBNZ monetary policy review and rate statement. We expect few surprises and the introduction of a further 50 basis point OCR adjustment, taking the overall underlying interest rate to 2.5%. Such a move is fully priced in by markets meaning forward guidance is key in determining near term direction. A decline in domestic consumer and business confidence, coupled with a correction across the housing market and emerging indicators the local economy is poised to enter a recession have prompted investors to pare back RBNZ policy expectations. With the Bank continuing to indicate further rate hikes are need in this cycle in order to curb inflation, guidance will be critical.

Key Movers

Price action across major currencies saw the USD mark fresh 20 year highs and the Euro fall perilously to break below parity as markets adjust expectations for recession and a divergence in central bank monetary policy. The Euro tracked lower through the Asian session touching intraday and multi decade lows at 1.00003 allowing the USD DXY index to climb toward intraday and 20-year highs at 108.50. With the Euro poised to break below parity investors stepped in, rigorously defending a break below this key psychological handle and helping to mount a recovery back above 1.0050. With parity in sight the question is perhaps not if but when the Euro will break lower. Our attentions are affixed to July 21, where two critical risk events loom large. The ECB is set to meet and announce a 25 basis point rate hike, kick starting its tightening cycle. With the Fed hell bent on normalizing rates as quickly as possible ECB forward guidance and the path of future rate hikes within this cycle will be critical. The 21st also marks the day when the Nord Stream gas pipeline is due to be switched on again after scheduled maintenance. There are fears Russia will refuse to reinstate supply lines, further deepening Europe’s energy crunch and all but guaranteeing the introduction of electricity rationing, plunging the Euro well below parity.

In other news the Japanese Yen marked fresh 24 year lows as markets continue to price a widening in monetary policy expectations. With US and Japanese officials refusing to commit to currency intervention investors seemed bent on forcing the embattled Yen ever closer to 140.

Our attentions today turn to US inflation data as the key and critical item on tonight’s macroeconomic ticket.

Expected Ranges

  • NZD/USD: 0.6080 - 0.6180 ▲
  • NZD/EUR: 0.6050 - 0.6130 ▲
  • GBP/NZD: 1.9280 - 1.9450 ▼
  • NZD/AUD: 0.9020 - 0.9090 ▲
  • NZD/CAD: 0.7920 - 0.8020 ▲