NZD tests 0.70 as US bond yields retreat
Thursday 31 March, 2022
Daily Currency UpdateThe New Zealand dollar extended through trade on Wednesday, testing 0.70 US cents before edging back toward 0.6980 leading into this morning’s domestic open. A broadly weaker US dollar and pull back in US bond yields helped the NZD consolidate recent gains. Advancing steadily on the day, the NZD again failed to breach resistance at 0.70 as investors appear reluctant in pushing the currency beyond this key psychological barrier in the face of contrasting forces. While supported by elevated commodity prices and a positive yield premium, the NZD remains vulnerable to a broader risk-off narrative as optimism surrounding recent peace talks fade and Russia renews shelling in areas around Kyiv. With little of note on today’s domestic data front, our attentions turn to US inflation indicators and broader yield and commodity performance for direction.
Key MoversThe US dollar was broadly weaker through trade on Wednesday as a pullback in US bond yields and an elevated inflation print in Germany and Spain prompted euro gains. The Dollar Index fell for a second consecutive session as the euro rallied toward its highest level in almost a month, breaking above 1.1150 to mark intraday highs at 1.1155. Annual inflation in Germany and Spain comfortably surpassed market expectations and fueled a rise in bond rates and ECB policy expectations. German 2-year bund rates pushed back into positive territory for the first time in 7 years while markets adjusted expectations for ECB rate hikes, pricing a 60-basis point increase before year-end. With the US bond rate retreating, the euro outperformed its major counterparts while the yen extended its recovery following the week's earlier sell-off. Having touched 125, the USD fell back below 122 where it now buys 121.79 yen.
Our attentions today turn to US core deflator data, a key measure of inflationary pressures, ahead of tomorrow’s all-important US non-farm payroll print.
- NZD/USD: 0.6880 - 0.7020 ▲
- NZD/EUR: 0.6220 - 0.6320 ▼
- GBP/NZD: 1.8780 - 1.8920 ▼
- NZD/AUD: 0.9230 - 0.9320 ▲
- NZD/CAD: 0.8650 - 0.8750 ▲