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New Zealand dollar rallies on USD weakness

Monday 12 September, 2022

Daily Currency Update

The New Zealand dollar is slightly stronger this morning when valued against the greenback. The NZD ended the week just over 0.61. More hawkish Fed-speak kept upside pressure on US short-end rates, seeing the 2-year rate end the week at a fresh 15-year high and resulting in more yield curve inversion. US equities ended the week on a strong note, fueled by short-covering. This saw the NZD appreciate through 0.6150, having traded below 0.60 just 48 hours earlier. The overnight session saw some settling down in FX markets and the NZD closed the week just above 0.61, up nearly 1% for the day and relatively flat for the week overall. Looking ahead this week and today we will see the release of the monthly Visitor Arrivals. Tourism plays an important role in the economy. About 7% of the population is employed by the tourism industry, and a sizable portion of the nation's GDP is indirectly related to tourism. On Tuesday we will see the release of the Food Price Index (FPI) which measures the change in the price of food and food services purchased by households. On Wednesday Statistics New Zealand will release the latest Current Account which is directly linked to currency demand. A rising surplus indicates that foreigners are buying more of the domestic currency to execute transactions in the country. On Thursday all eyes will be on the release of New Zealand's quarterly Gross Domestic Product (GDP) which is the broadest measure of economic activity and the primary gauge of the economy's health.

Key Movers

The Dow Jones Industrial Average soared more than 300 points on Friday, cementing a three-day rally and breaking a three-week losing streak as both the US dollar and Treasury yields took a breather from their recent surges and moved lower. A declining dollar is a boon for US stocks, especially multinational stocks that have high costs in the US but sell a lot of their products overseas. The US dollar index is down just 1.5% from its recent cycle high of $110.70. Meanwhile, the 10-year US Treasury yield has fallen just a few basis points from its recent high of 3.35%. The S&P500 rose 1.5%, taking its weekly gain to 3.7%. Rather than fundamentals driving the market, traders saw this as a short-covering rally, with the most-shorted stocks performing the best. One potential downside risk in the week ahead for the USD is the release of the latest US CPI for August. The Federal Reserve has already downplayed the weaker US CPI report for July, but another weaker CPI report for August could challenge market expectations for a third consecutive 75bps hike later this month.

Expected Ranges

  • NZD/USD: 0.6000 - 0.6200 ▲
  • NZD/EUR: 0.5950 - 0.6150 ▲
  • GBP/NZD: 1.8950 - 1.9150 ▼
  • NZD/AUD: 1.1050 - 1.1250 ▲
  • NZD/CAD: 0.7850 - 0.8050 ▼