NZD stoic in face of USD surge
Daily Currency UpdateThe New Zealand Dollar proved remarkably resilient through trade on Monday, closing only marginally below the weekly open despite broad-based US dollar support and a general risk off tone. Having found a baseline at 0.6160 the NZD tracked toward intraday highs at 0.6210 before succumbing to the USD dollar advance throughout the overnight session. Broad based US dollar support forced the NZD below 0.62 US cents and back toward lows near 0.6150/70. When compared with the losses suffered by key counterparts the NZD fared reasonably well through Monday, however when we consider last weeks collapse and 4% correction the Kiwi hasn’t escaped the definitive risk off shift. Our attentions turn to any further weakening in the Chinese Yuan after Monday’s downturn failed to spill into NZD value, as the PBOC looks to enlist measures to shore up growth amid a COVID-Zero policy and evolving property crisis. Having found support at 0.6150 we are keenly attuned to any break below this handle as a signal of further downside and possible move back toward Mid-July lows.
Key MoversThe US Dollar surged through trade on Tuesday amid a backdrop of surging global rates, hawkish near-term Fed policy expectations and rising European gas prices. The DXY dollar index advanced almost 1% on the day, buoyed by a repositioning in market expectations leading into this week’s annual Jackson Hole Symposium on Monetary Policy. Analysts had begun pricing in a dovish pivot in Q2 2023 as FOMC policy makers were forced to pivot away from controlling inflation pressures to stimulating an economy mired in recession. A string of hawkish rhetoric through the last 10 days has investors adjusting expectations as to the timing of a pivot in policy direction and amending expectations as to the tone of Jerome Powell’s market update this week.
The assumption Powell will maintain an aggressive approach to near term rate hikes has helped fuel an uplift in US treasury yields and global rates, elevating the USD against the Yen while compounding GBP and Euro losses. Sterling and the Euro suffered heavy losses through Monday as reports Gazprom will stop gas supply to Germany through the Nordstream pipeline for 3 days of unscheduled maintenance at the end of the month sent gas pricing spiraling upward. Fears Russia will continue to initiate disruptions to key Gas supply networks or simply switch off major pipelines as it weaponises energy supply forced the benchmark Gas future price to a record high of 277 Euro per mega watt hour. Surging energy prices and the broader economic impact have forced analyst to adjust inflation expectations for the UK and the continent. With inflation pushing above 10% in the UK last month there is an expectation prices could rise as much as 18-20% come January. The Euro plunged below parity, making a new 20 year low at 0.9926 while the GBP extended last weeks downturn moving below 1.1750. With risk sentiment deteriorating the US dollar is closing in on the highs seen in mid-July as our attentions turn to a slew of Manufacturing and Services data from the UK, Europe and the US.
- NZD/USD: 0.6080 - 0.6230 ▼
- NZD/EUR: 0.6150 - 0.6250 ▲
- GBP/NZD: 1.8920 - 1.9180 ▼
- NZD/AUD: 0.8950 - 0.9020 ▼
- NZD/CAD: 0.8020 - 0.8090 ▲