Home Daily Commentaries NZD underperforms ahead of RBNZ policy update

NZD underperforms ahead of RBNZ policy update

Daily Currency Update

The New Zealand dollar tracked lower through trade on Tuesday, despite an improvement in investors' appetite for risk and a softening in US dollar demand. Having tracked sideways through the domestic session the NZD slipped below US$0.6350, marking intraday lows at US$0.6320 following a decline in NZ rates. The deterioration in the global macroeconomic outlook forced New Zealand's two- and 10-year rates lower while global rates edged higher. We now turn our attention to the RBNZ’s monthly monetary policy review and statement. We anticipate another 50-basis point rate hike. Sustained inflationary pressure and a significant correction in wholesale mortgage rates through July will spur policymakers to tighten monetary policy conditions further despite the bleak economic outlook. With the 50-point adjustment already priced into the OIS market, NZD price action will be determined by the tone adopted by policymakers and forward guidance provided. Markets anticipate the cash rate will peak around 4% in Q2 next year. Hawkish rhetoric that suggests an extension beyond this handle could lend some support to the NZD and foster a break toward US$0.64, while a dovish tone will likely drive a break below US$0.63.

Key Movers

The Canadian dollar outperformed all other major currencies through trade on Tuesday, climbing half a percent on the heels of another robust inflation update. Despite a contraction in headline price pressures core measures of inflation continued to rise, extending toward 5.5% year on year. The sustained rise in the cost of living prompted investors to price in a higher chance of more front-loaded Bank of Canada rate hikes, forcing 2-year treasury rates higher and propelling the CAD to intraday highs at CA$0.7791. Improved US earnings data from key major retailers helped advance renewed demand for risk, driving gains across key equity indices and an uptick in global rates. The backdrop of higher rates and improved risk sentiment forced the Japanese yen to give up 0.7% against the USD, allowing the dollar to climb back above Y¥134, while the euro struggled to extend beyond US$1.02 and the pound toyed with a move above US$1.21. We turn our attention now to UK CPI data. Median estimates suggest year-on-year price pressures will print around 9.8%, but a mild upside surprise could see a break above 10%. US retail sales headline the US docket, while Fed minutes for July could provide some insight into the pace of rate hikes moving into September.


Expected Ranges

  • NZD/USD: 0.6280 - 0.6420 ▼
  • NZD/EUR: 0.6180 - 0.6280 ▼
  • GBP/NZD: 1.8920 - 1.9220 ▲
  • NZD/AUD: 0.8980 - 0.9080 ▼
  • NZD/CAD: 0.8080 - 0.8220 ▼