NZD marks new two year low before mounting a recovery
Daily Currency UpdateThe New Zealand dollar opened higher this morning, having tested and rebuffed a break below US$0.60. The NZD trended downward, falling steadily through the domestic session to mark intraday and 2-year lows at US$0.5997. Having tracked between fresh lows and US$0.6030 leading into the overnight session, the NZD found support late on the heels of a USD softening. Sustained hawkish Fed speak prompted investors to front-load rate hikes leaving the door open for a correction in policy once inflation pressures ease. The adjusted rate outlook fueled an improvement in risk sentiment and helped the NZD climb back through US$0.6050 and extend its recovery into this morning’s open, where it currently buys US$0.6080.
With little of note on today’s domestic ticket, our attentions remain with offshore drivers and the broader global risk narrative. Markets have now embraced global recessionary fears, and while the NZD has found some support after marking new two-year lows, we believe risks remain skewed to the downside.
Key MoversThere was ample content to excite investors overnight as currency markets enjoyed a period of elevated volatility and price action. The USD surged through the early part of the trading day marking new highs and forcing the euro, GBP and JPY to fresh lows. The Japanese yen’s rapid decline continued giving up ¥144 and ¥144.50, stopping just shy of a break above ¥145. The deterioration in yen yields and the Bank of Japan’s policy of yield curve maintenance have forced investors away from the yen despite the recent risk-off narrative. Haven plays have been driven toward the US dollar as Fed rate hikes and the promise of more aggressive monetary policy elevate expectations for a widening yield gap. The euro traded flat before recovering back above parity on the heels of a USD correction, while the GBP bounced off 37-year lows, extending back above £1.15.
We now turn our attention to the ECB’s policy meeting. We anticipate policy makers will respond to the current inflationary pressures and lift rates by three-quarters of a percent, proffering an aggressive policy platform moving forward. Key policy makers have hinted at a desire to curb near-term inflation at the expense of a deeper recession, fearing price pressures will become entrenched. A hawkish ECB could help drive a near-term euro recovery and potentially extend a short-term bounce above parity.
- NZD/USD: 0.5950 - 0.6130 ▲
- NZD/EUR: 0.6020 - 0.6120 ▼
- GBP/NZD: 1.8880 - 1.9120 ▼
- NZD/AUD: 0.8930 - 0.9020 ▲
- NZD/CAD: 0.7900 - 0.8020 ▲