NZD range bound in quiet start to the week
Tuesday 23 May, 2023
Daily Currency UpdateThe NZD tracked sideways through trade on Monday in a quiet start to the week. With little headline newsflow on hand to drive direction and no new progress made in US debt ceiling negotiations, the NZD bounced between US$0.6260 and US$0.6290.
Domestic rates were corrected as the market re-positioned last week's brutal sell-off ahead of this week's RBNZ policy update. After fundamental forces collided with a misaligned market rate expectations surged last week. Having corrected on Monday we are pricing a 25-point hike, yet acknowledge a third of the market is still calling for a 50-point adjustment.
This week's RBNZ decision and subsequent forward guidance will prove key in shaping near-term NZD direction, particularly against key crosses like the yen and AUD. Having touched 12-month highs against the yen, extending a break above AU$0.94, a widening in the yield advantage could help drive home near-term gains ahead of a longer-run downward correction. NZ yield curves have steepened dramatically in recent weeks, a clear sign the domestic economy is headed for recession.
With little of note on today’s domestic calendar, our attentions remain on US debt ceiling negotiations and US/European PMI data ahead of the RBNZ decision.
Key MoversThere is little to report this morning as investors sidelined major bets Monday. An absence of headline data flow and mixed messaging from Fed policymakers and US debt ceiling negotiators ensured price action was well contained. The only notable mover is the Japanese yen. Higher US treasury yields and an elevated global rates backdrop saw the JPY weaken, marking 12-month lows against the NZD and giving up ground across the board.
We expect little progress today while attentions remain on US debt ceiling negotiations. Commentary from both sides suggests a deal is still some way off, yet the market remains optimistic a compromise will be struck. US and European PMI data dominate the macroeconomic ticket.
We expect the gap between service and manufacturing activity in Europe to close as service activity slows and manufacturing production steadies, while US data should signal a broader economic slowdown. Anything short of a significant market shock will have little impact on near-term rate expectations and we expect price action will be well contained.
- NZD/USD: 0.6220 - 0.6320 ▼
- NZD/EUR: 0.5780 - 0.5850 ▲
- GBP/NZD: 1.9620 - 1.9920 ▼
- NZD/AUD: 0.9380 - 0.9480 ▲
- NZD/CAD: 0.8420 - 0.8520 ▲