NZD steadies but a move below US$0.60 still looms large
Thursday 15 September, 2022
Daily Currency UpdateThe New Zealand dollar tracked sideways through trade on Wednesday as markets showed signs of stabilising and consolidating the post US CPI correction. Having tested a break below US$0.60 the NZD has shown some resilience and continues to hover marginally above this key psychological threshold, unable to sustain a more meaningful and extended upward recovery. Investors' focus remains squarely affixed to US rate expectations and the majority of analysts are pricing a 75-basis point hike at next week's FOMC policy meeting. That said, momentum is building behind calls for a full 100-point rate adjustment. Twenty-five percent of market participants are now pricing in a 1% rate adjustment while upgrading expectations for the peak underlying cash rate, prompting a deeper inversion in the US 2 and 10 year yield curves and fueling added near term USD support. We anticipate the NZD will continue to face an extended period of downward pressure as sustained risk aversion, the deterioration in the global growth outlook, a weaker Chinese yuan and growing domestic economic headwinds continue to weigh on the currency. A consolidate break below US$0.60 could signal another move toward key supports between US$0.57 and US$0.58.
Key MoversPrice action across majors was largely muted through trade on Wednesday with the exception of the Japanese yen. The yen pushed back against recent USD upside and a market push toward ¥145 as key policy makers stepped up calls for FX intervention. Reports the Bank of Japan would act as an agent for the Ministry of Finance should it wish to intervene surfaced late yesterday as officials called key Japanese banks to check underlying FX rates, a move often used to signal imminent intervention. The yen advanced 1% on the day pushing the USD back below ¥143.50. While there has been no intervention yet, markets are now acknowledging messaging from key officials as it is clear tolerance for further wholesale declines in the value of the yen is now limited.
In other news the euro continues to trade below parity while the British pound offered little and continues to trade around US$1.15. Markets largely ignored the UK’s CPI inflation update despite a surprise contraction in headline CPI down from 10% to 9.9%. The decline in headline CPI was offset by a stronger than anticipated increase in core CPI. Inflation remains well above the Bank of England’s 2% target and the latest print does little to amend market expectations for a 75-point MPC rate hike next week.
- NZD/USD: 0.5980 - 0.6120 ▲
- NZD/EUR: 0.5980 - 0.6080 ▼
- GBP/NZD: 1.9080 - 1.9320 ▲
- NZD/AUD: 0.8850 - 0.8930 ▼
- NZD/CAD: 0.7880 - 0.7950 ▲