Home Daily Commentaries NZD rebounds as markets prepare for pause in Fed tightening cycle

NZD rebounds as markets prepare for pause in Fed tightening cycle

Daily Currency Update

The New Zealand dollar edged higher through trade on Monday, buoyed by firming expectations the Fed will choose to pause its rate tightening cycle this week. Having tested a break below US$0.60 last week, the NZD found support through the end of the week and trade yesterday as markets work to adjust Fed Funds Rate pricing.

After Friday’s mixed labour update, attention turned to ISM services data. An unexpected fall in activity in May, within which employment indicators skipped downward, helped fuel calls for FOMC policymakers to either pause or push back further rate hikes in an effort to cushion the economy’s landing and allow time for recent rate hikes to take effect. Having edged higher against the USD, the NZD remains under pressure when compared with other major counterparts, namely the AUD.

Having eyed a break above AU$0.94 ahead of the last RBNZ policy meeting last month, the NZD broke below AU$0.9180 and appears set to break below the April low of AU$0.9150. With domestic markets returning from a long weekend and no data on hand to drive direction, our attention turns to the RBA and its latest policy update.  

Key Movers

The US dollar trended downward Monday after ISM services data fell well short of market estimates. Despite robust payroll growth on Friday, US non-farm payroll data indicated a downturn in wage growth and an uptick in underlying unemployment. While the Labour conditions continue to operate near full capacity wage performance remains a key focus for Fed policymakers.

Monday’s ISM services update fell sharply off April highs near 52 as new orders and employment components underperformed. Employment conditions data compounded Friday’s downturn in wage growth and pointed to a medium-term softening in payroll growth and wages, welcome news for the Fed.

With markets preparing for the Fed to pause its tightening cycle this week, the softer data helped firm bets and elevate risk assets. With yields retreating, the USD has given up some of last week’s gains and our attention now turns to the Fed and this all-important policy update. We expect the Fed will leave rates on hold, yet issue explicit instructions it intends to resume hiking in July if needed.  The GBP and euro are both stronger while the JPY benefited from a decline in global rates.

Expected Ranges

  • NZD/USD: 0.5980 - 0.6130 ▲
  • NZD/EUR: 0.5580 - 0.5720 ▲
  • GBP/NZD: 2.0220 - 2.0680 ▼
  • NZD/AUD: 0.9120 - 0.9220 ▼
  • NZD/CAD: 0.8080 - 0.8220 ▲