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NZD surges on heels of USD sell off

Friday 20 May, 2022

Daily Currency Update

The New Zealand dollar advanced through trade on Thursday, pushing back through 0.64 US cents amid a backdrop of a broadly weaker US dollar. Markets maintained a cautious mantra following Wednesday’s dramatic sell off across key equity indices, as fears US inflationary pressures will prompt a wholesale decline in the US growth outlook. US treasury yields moved lower, driving a notable correction in the USD. Second tier macroeconomic data affirmed expectations economic activity is slowing, compounding USD losses and allowing the NZD to recover off lows below 0.63 US cents. Having struggled in the face of wide-reaching headwinds and elevated risk aversion, this week’s inflation reality check could provide a catalyst to support a broader NZD recovery on the heels of a weakening USD. Our attentions now remain firmly affixed to further deterioration in the US growth narrative and the potential for a disruption in Fed rate hike expectations.

Key Movers

The US dollar dominated direction through trade on Thursday, giving up ground to all major counterparts, amid rising fears inflation pressures will derail the pandemic recovery and dampen growth prospects through the months ahead. Wednesday’s inflation reality check forced investors to reassess expectations for US economic growth, as signs sustained inflation will manifest itself in a broader economic slowdown, particularly across key retail markets. The dollar gave up an average of 1% against key counterparts, allowing the euro to punch back through 1.06, the pound to push above 1.25 and the yen to force the dollar back below 128. Markets have been significantly long USD through the last few months, and this week’s correction could be the beginning of a broader shift in USD sentiment opening the door for a recovery in other major units. Having witnessed a series of false breaks lower in recent months, a sustained shift in sentiment and an anticipated deterioration in the US economic outlook is needed. When all is said and done, the US economy is still in a position of relative strength when compared with Japan, the UK and Europe, which should afford some cushioning for the USD should a downward correction materialise.

Expected Ranges

  • NZD/USD: 0.6280 - 0.6480 ▲
  • NZD/EUR: 0.5980 - 0.6120 ▲
  • GBP/NZD: 1.9380 - 1.9680 ▼
  • NZD/AUD: 0.9020 - 0.9120 ▲
  • NZD/CAD: 0.8080 - 0.8280 ▲