Home Daily Commentaries NZD buoyed by surge in Oil prices and softer US manufacturing activity

NZD buoyed by surge in Oil prices and softer US manufacturing activity

Daily Currency Update

The New Zealand dollar climbed through resistance on Monday, pushing through US$0.6250 to test US$0.63 amid a surge in oil prices and weaker than anticipated US manufacturing data.

Oil prices lurched higher following OPEC’s decision at the weekend to cut production by more than 1 million barrels per day. With the move designed to hurt short sellers and force a rebound off 15-month lows, the uptick in oil costs will invariably have a meaningful run-on impact on near-term inflation pressures.

With Central banks working hard to control price pressures, OPEC’s decision could force policymakers to maintain a tightening bias for longer. With oil prices leading gains across energy assets, the NZD surged through US$0.6250, extending gains toward intraday highs at US$0.6290.

A broadly weaker USD helped the NZD consolidate the upturn as softer manufacturing data elevated concerns the US economy is rushing headlong toward recession.

Our attention now turns to domestic business confidence data and a rebound off record lows. While we still expect conditions to point toward stagflation, an improvement in sentiment could help underpin the recent NZD uptick ahead of the upcoming RBNZ policy meeting.

With the NZD falling steadily against the AUD through Monday, down near 1%, today’s RBA policy meeting could prove critical in determining near-term direction. A rate hike will likely drive the NZD back toward 0.92, while maintenance of the current rate platform should lift the NZD back above 0.93.

Key Movers

Oil producers and energy-rich economies lead gains across major currencies through trade on Monday with the NOK, AUD and CAD leading gains following the 6% surge in brent crude oil prices.

OPEC’s decision to cut production prompted a swift and dramatic reaction on open Monday, driving oil prices higher, while lifting near-term yield expectations and driving global rates higher.

The anticipated run-on effect on inflation helped fuel an uptick in US rate expectations before weaker-than-anticipated manufacturing data forced markets to counter expectations. While the manufacturing sector only makes up a small section of the US economy, the dire print highlights concerns the US is rushing headlong toward recession.

All key metrics within the ISM manufacturing report fell well into contractionary territory, marking their lowest level in 14 years (excluding the initial Covid downturn). US rates plunged in the aftermath, dragging the dollar lower across the board.

Our attention now turns to US JOLTs data as a key marker of labour market health. With conditions easing, another soft print will likely advance the theme’s calling for a pause to the Fed’s tightening cycle while elevating recession fears.

Expected Ranges

  • NZD/USD: 0.6180 - 0.6320 ▲
  • NZD/EUR: 0.5720 - 0.5820 ▲
  • GBP/NZD: 1.9580 - 1.9820 ▼
  • NZD/AUD: 0.9180 - 0.9350 ▼
  • NZD/CAD: 0.8380 - 0.8520 ▲