Kiwi outperforms as war avoided; for now
Wednesday 23 February, 2022
Daily Currency UpdateThe New Zealand dollar outperformed most major counterparts through trade on Tuesday, consolidating a break above 0.67 and testing 0.6750. Renewed demand for risk helped propel the NZD toward intraday highs at 0.6755. Markets adopted a more positive tone overnight, despite a broader deterioration in Russian/Ukrainian relations. With war seemingly imminent, investors appears buoyed by the fact war in Europe has not yet broken out. Market attentions remain affixed to ongoing developments in Europe, with price action likely to be whippy through the coming days and weeks Russia intentions are made clear. Domestically, our focus turns to the RBNZ policy meeting and rate statement. With inflation pressures rising we cannot discount a 50-basis point rate hike, however, expect the RBNZ will maintain a measured approach, issuing a 25-point rate hike while signalling additional rate adjustments will be needed to control inflationary pressures. Markets have already priced in rate hikes on a move to an OCR at 3%, while there is some pricing for a 50 basis point hike a 25 point hike in line with the majority of expectations, could prompt near term NZD softness as markets correct positions and discount the possibility of a future 50 point hike. We are watching resistance at 0.6750 and support at 0.6730.
Key MoversIn the broader context of global financial markets, currencies remain largely immune to the recent deterioration in Russian and Ukrainian relations, failing to acquiesce to the same risk off trend plaguing equities and other risk assets. Instead, the USD remains under pressure giving up ground to traditional risk correlated units in the AUD and NZD, while the euro found support overnight as investors appeared buoyed by the fact Europe was not at war, for now. The dollar index tested a break below 96 while the euro pushed through 1.13 to touch intraday highs at 1.1360. The GBP underperformed, giving up 1.36 to hit intraday lows at 1.3540 before pairing gains into the daily close and opening Wednesday only marginally lower at 1.3590.
With little of note on the macroeconomic ticket, our attentions remain affixed to developments in Europe. As world leaders deploy harsh sanctions on Russian entities and individuals and war appears imminent, price action will likely remain whippy as investors react and adjust to ongoing developments. Should a full-scale war break out, the euro and GBP will come under increased near-term pressure.
- NZD/USD: 0.6880 - 0.6790 ▲
- NZD/EUR: 0.5910 - 0.5980 ▲
- GBP/NZD: 2.0020 - 2.0350 ▼
- NZD/AUD: 0.9280 - 0.9370 ▲
- NZD/CAD: 0.8530 - 0.8650 ▲