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Kiwi searching for direction

Thursday 1 January, 1970

Daily Currency Update

NZD - New Zealand DollarThe New Zealand Dollar traded sideways overnight as US PMI’s disappointed to the downside and trading volumes were lower as Australia observed a bank holiday. Continuing to trade below 0.7000, the NZD/USD was largely contained, oscillating between 0.6960 and 0.6990. It failed to keep up with its rival across the pond as AUD/USD rose from 0.7340 to 0.7380, forcing AUD/NZD higher to 1.0565, significantly above Friday’s lows which were the lowest level since December. Traders will be keeping an eye on today’s monetary policy meeting from the Reserve Bank of Australia. Last month, the central bank indicated they would be looking to reduce the scale of their bond purchasing program from $5b per month to $4b per month as the economic picture was looking rosier than they had predicted. A lot can change in a month, and with the Delta variant of COVID19 reeking havoc throughout Australia, forcing widespread lockdowns and raising concerns about Q3 economic growth levels, many analysts are predicting that the central bank will be forced to reverse its decision today. In order to support the economy through this period, an increase of asset purchases to $6b could be on the table and this is the base case being priced by markets at present. NZD/USD is lacking clear direction heading into today’s session and may have to wait until Wednesday’s key employment data release to set the tone. In the interim, it remains relatively well supported at multi-week lows of 0.6880 whilst on the topside, a break above 0.7020 would be welcomed by importers.

Key Movers

As we alluded to above, the main story being digested by markets and moving prices has been the recent weakness in Purchasing Manager’s Index (PMI) surveys. These monthly surveys, which are leading economic indicators of trends in the manufacturing and service sectors, reflect the outlook for business conditions from the perspectives of analysts, investors and company managers. Overnight, we had a US ISM manufacturing Survey which after five months of strong reads, fell from 60.6 to 59.5, missing market expectations of 61.00. Many participants are pointing to production constraints, shortages of raw materials and difficulty finding labour as drags on their manufacturing plans. The release, which comes after weaker than expected PMI’s out of Europe and China, raises an important question for markets to ponder; has global growth peaked?The post PMI price action was interesting as yields were pushed lower, oil prices declined and the Japanese Yen was stronger. The US 10-year yield fell sharply from 1.24% to below 1.15%, although it has recovered slightly since then. The possibility of weaker demand in a lower growth environment saw oil prices fall 3% to 72.30, dragging the tightly correlated Canadian Dollar 0.3% lower throughout trade. Consistent with a risk off backdrop, USD/JPY was pushed lower to trade close to the key 109.00 handle.

Expected Ranges

  • NZD/USD: 0.6880 - 0.7020 ▼
  • NZD/EUR: 0.5800 - 0.5920 ▼
  • GBP/NZD: 1.9800 - 2.000 ▼
  • AUD/NZD: 1.0450 - 1.0600 ▲
  • NZD/CAD: 0.8670 - 0.8760 ▲