NZD steadies despite weaker than expected labour market performance
Thursday 4 August, 2022
Daily Currency UpdateThe New Zealand dollar edged higher through trade on Wednesday, recouping early losses amid an improved appetite for risk. Having opened at US$0.6250 the NZD fell early marking intraday lows below US$0.6215 after a softer than anticipated labour market survey print. Lacklustre employment growth and a small lift in the unemployment rate were enough to offset stronger wages data and did little to ease concerns surrounding the inflation outlook. Having touched US$0.6213 the NZD then climbed through the latter part of the domestic session and overnight as risk sentiment improved. Stronger corporate earnings and a stout USD ISM services print helped lift key equity indices and dragged risk-correlated currencies higher, helping the NZD touch uS$0.6280. With little of note on today local macro ticket our attentions turn to the Bank of England policy meeting. Markets are divided in pricing a 25- or 50-point hike as policymakers battle to control elevated inflationary pressures and lacklustre domestic economic performance. A lack of conviction from policymakers to date ensures there is ample room for market reaction.
Key MoversPrice action across majors was modest through trade on Wednesday with a small improvement in risk sentiment allowing commodity currencies to track higher and forcing haven assets lower. The JPY and CHF suffered notable downturns while the Euro and GBP failed to find momentum. The USD found support despite the risk-on move climbing against the EUR, GBP, and JPY. A stronger than anticipated ISM service print and more hawkish fed speak helped elevate rate expectations and lift treasury yields. Services data showed a surprise improvement, climbing to a 3-month high as new orders rose and supply side pressures eased signalling a potential softening in inflationary pressures.
Our attentions turn now to the Bank of England’s MPR policy meeting. The market is divided on whether policymakers will lift the rate by 25 or 50 basis points. While the consensus tilts toward a more aggressive policy move the monetary policy committee has offered mixed guidance in recent weeks suggesting division among policymakers. With the UK economy struggling to stimulate growth while controlling historical inflationary pressures there is ample scope for market reaction and volatility.
- NZD/USD: 0.6220 - 0.6350 ▲
- NZD/EUR: 0.6080 - 0.6220 ▲
- GBP/NZD: 1.9080 - 1.9620 ▼
- NZD/AUD: 0.8980 - 0.9080 ▼
- NZD/CAD: 0.7980 - 0.880 ▲