NZD falters amid growing stagflation fears
Wednesday 1 June, 2022
Daily Currency UpdateThe New Zealand dollar rebound stalled through trade on Tuesday as rising inflationary pressures were again the market's primary concern, while fears for a period of domestic stagflation grow. Having opened above US$0.6550, the NZD slipped belowUS$0.65. The ANZ business outlook survey proffered a bleak review of the domestic economy with activity indicators falling sharply and consumer confidence plunging. The correction in business activity and outlook coupled with declining consumer confidence and a slump in the housing market suggests a recession may be just around the corner. As the RBNZ attempt to front-load its yield curve to curb rising inflationary pressures and economic activity flatlines there is a real fear the NZ economy will be caught in a stagflation loop through the months ahead. Having touched intraday lows at US$0.6484, the NZD found support leading into this morning’s open, pushing back above US$0.65 where it currently buys US$0.6512. With little of note on the domestic ticket, our attentions remain on broader global inflationary pressures and US ISM manufacturing data This will be a key release and measure of economic performance. With a modest fall in activity already priced in, anything beyond expectations is a clear signal the US economic recovery is running out of steam.
Key MoversPrice action across major currencies was relatively modest through trade on Tuesday as markets appeared content with absorbing further inflationary shocks. An uptick across global rates and treasuries and a slowdown in equities failed to spill into currency markets as most majors maintained a relatively narrow range. A record lift in the Euro area CPI prompted investors to adopt a more cautious approach elevating the USD and forcing the Euro toward intraday lows below 1.07. CPI inflation printed above 8% in May well ahead of market expectations. The upside surprise comes a week ahead of the ECB's next policy meeting and has prompted investors to price in an immediate end to QE stimulus with a view to hiking interest rates in July. Despite the market pricing in a 100 basis point increase in euro rates before the year end, the consensus view of policymakers appears to be for a measured and steady approach for fear of tipping the economy into recession. Having found support against the euro, the USD pushed back above ¥128 vs the Japanese yen as the rise in global rates prompted further JPY weakness. With the pound firmly entrenched in a narrow range our attentions turn now to US ISM manufacturing data. With expectations for a moderate downward correction, anything beyond consensus estimates could add downward pressure on the USD as markets revise growth forecasts leading into H2.
- NZD/USD: 0.6430 - 0.6560 ▼
- NZD/EUR: 0.5990 - 0.6100 ▼
- GBP/NZD: 1.9220 - 1.9480 ▲
- NZD/AUD: 0.9020 - 0.9120 ▼
- NZD/CAD: 0.8180 - 0.8310 ▼