Home Daily Commentaries NZD bounces off lows as risk sentiment improves

NZD bounces off lows as risk sentiment improves

Friday 8 July, 2022

Daily Currency Update

The NZD rebounded through trade on Thursday, bouncing off lows below 0.6150 and extending back toward 0.62 US cents amid an improvement in sentiment. Rising fears for a global recession have forced markets to adopt a risk off bias in recent weeks, weighing on commodity prices and growth correlated currencies. Reports China is considering introducing a $220 billion bond program designed to fund infrastructure investment through H2 helped ease escalating recession concerns, elevating commodity prices and potentially shoring up the Chinese growth outlook. Commodity currencies rebounded as risk sentiment improved. Having touched intraday highs at 0.6195, the NZD has edged marginally lower into this morning’s open buying 0.6180 US cents. Having rebounded against the USD, the NZD is mixed against other key crosses. The improvement in risk appetite has fueled a recovery against the yen, while a convergence in 10-year interest rate spreads and central bank policy expectations has forced the NZD toward key supports at 0.9020 against the AUD. With little of note on today’s domestic macroeconomic ticket, our attentions remain with the broader risk narrative leading into tonight’s all-important US non-farm payroll print.

Key Movers

Commodity currencies led gains through trade on Thursday as improved risk sentiment forced the USD off recent highs. The CAD, NOK, NZD and AUD all moved higher, with the AUD leading gains across the commodity driven cohort. The pound also outperformed, reacting positively to reports Boris Johnson has finally acknowledged his position as Torrie leader is now untenable and is preparing for a leadership contest, likely in October. While Johnson’s current wish is to remain as caretaker PM into the leadership, ballot markets anticipate he will be forced to resign sooner. The Prime Minister has been mired in scandal after scandal and with the ruling Torrie party divided, the promise of new leadership and unity have buoyed markets. Sterling advanced back above 1.20 to touch intraday highs at 1.2030. In other news, the euro remains under pressure, marking fresh lows at 1.0150. European gas futures rose another 6% overnight, marking their highest level since March, elevating fears officials will have no choice but to introduce electricity rationing amid sustained supply shortages. With the ECB struggling to control inflationary pressures, further elevation in energy costs and an increasing decline in consumer purchasing power are pushing the continent toward recession and a cycle of stagflation. Our attentions remain with the performance of gas futures and US non-farm payroll data as we manage direction into the weekly close.

Expected Ranges

  • NZD/USD: 0.6120 - 0.6220 ▲
  • NZD/EUR: 0.6030 - 0.6130 ▲
  • GBP/NZD: 1.9280 - 1.9620 ▲
  • NZD/AUD: 0.8980 - 0.9080 ▼
  • NZD/CAD: 0.7980 - 0.8060 ▼