Home Daily Commentaries NZD tracks sideways leading into key monetary policy update

NZD tracks sideways leading into key monetary policy update

Daily Currency Update

The New Zealand dollar trended downward through trade on Wednesday amid a surge in global interest rate expectations and a further deterioration in the risk narrative. Having opened at US$0.6210 the NZD maintained a largely narrow trading band, bouncing between US$0.6160 and US$0.6200 as it tracked steadily downward. An absence of headline newsflow and major macroeconomic data updates allowed investors to take stock and prepare positions ahead of this week’s Jackson Hole Symposium on monetary policy. Higher inflation expectations have prompted investors to price in more aggressive monetary policy tightening with analysts looking to Fed Chair Jerome Powell to affirm the Federal Open Market Committee’s (FOMC) hawkish stance. Rising gas prices, the corrosion of the global growth outlook and elevated US rate expectations continue to weigh on the NZD. Having staved off a correction below US$0.6150 the New Zealand dollar remains at the mercy of offshore drivers. We anticipate any near-term upside will be limited to the mid-august high of US$0.6468, while a bearish bias brings the mid-July low and a break below US$0.61 back into focus. We turn our attention to the domestic retail sales data for Q2 and we are looking for any rebound in post-lockdown activity. Preliminary US GDP data and unemployment claims headline the offshore ticket and act as key markers in guiding Fed policy expectations.

Key Movers

A surge in global rates on the heels of rising inflation expectations has helped underpin recent USD gains, driving the US Dollar Index (DXY) higher as the euro, GBP, and JPY all fell. The yen struggled amidst the backdrop of higher global rates as the USD powered back above ¥137. The euro and GBP struggled to garner any upward momentum despite aggressive moves across their respective yield curves. Another upswing in US gas prices has forced investors to price in more aggressive central bank policy action. UK 2-year rates climbed a quarter percent while European yields jumped almost 10 basis points. The market is now betting on central banks aggressively hiking interest rates in a bid to control near-term inflation and avoid elevated prices becoming entrenched within the global economy. Despite the rising fears of a global recession, the market's focus remains on inflation. The euro failed to break back above parity while the pound slipped back below £1.18. We now turn our attention to the US GDP and unemployment claims as key markers leading into this weekend’s symposium on monetary policy.

Expected Ranges

  • NZD/USD: 0.6130 - 0.6230 ▼
  • NZD/EUR: 0.6180 - 0.6240 ▼
  • GBP/NZD: 1.8980 - 1.9120 ▲
  • NZD/AUD: 0.8920 - 0.9020 ▼
  • NZD/CAD: 0.7980 - 0.8080 ▼