Home Daily Commentaries NZD makes new 2 year low amid sustained risk aversion and CNH depreciation

NZD makes new 2 year low amid sustained risk aversion and CNH depreciation

Daily Currency Update

The New Zealand dollar underperformed through trade on Thursday, plunging to mark fresh 2-year lows amid sustained risk aversion and deeper Chinese yuan correction.  Markets ignored a surprise uptick in Q2 GDP performance. While the domestic economy showed some signs of recovery from strict Covid 19 restrictions, private consumption and business investment fell, compounding a decline in confidence. Having tracked within a narrow band through the local session the NZD fell steadily overnight. Global rates rose again as the likelihood of more Fed monetary policy tightening and the prospect of sustained and elevated inflation pressures weighs on risk assets and key industrial commodities. The USD/CNH finally broke above 7, despite efforts from PBOC officials to prevent further depreciation. Investors extended gains, consolidating the move and marking new highs at CN¥7.0150. Yuan weakness spilled over into the NZD forcing a move below US$0.60 cents. Having broken the psychological barrier investors appeared to consolidate the downturn as a pull back in risk assets compounded losses and drove the NZD to intraday and 30-month lows at US$0.5960.

Key Movers

The most notable move across currency markets overnight was the extended depreciation in the Chinese yuan.  Despite a consolidated program of intervention from the PBOC to prevent extended yuan downside, it appears their efforts have only worked to slow the pace of decline rather than prevent it. Markets demand for the CNH and CNY has deteriorated in recent months as China’s strict Covid zero policy coupled with a property market collapse have crushed the domestic economic outlook. The divergence in monetary policy between the Fed and PBOC allowed the USD to break above a key psychological barrier overnight. USD/CNH pushed through 7 and investors sought to consolidate the break extending gains to CN¥7.0150. The move spilled into the AUD and NZD as key yuan proxies. With the Euro edging back toward parity and the yen stabilising around JP¥143.50 our attentions turn to key Chinese activity data. A decline in retail sales and industrial production could prompt a further yuan depreciation.

Expected Ranges

  • NZD/USD: 0.5920 - 0.6080 ▼
  • NZD/EUR: 0.5920 - 0.6030 ▼
  • GBP/NZD: 1.9020 - 1.9420 ▲
  • NZD/AUD: 0.8850 - 0.8930 ▼
  • NZD/CAD: 0.7850 - 0.7930 ▲