NZD unable to capitalise on improvement in the risk agenda
Wednesday 5 October, 2022
Daily Currency UpdateThe New Zealand dollar drifted sideways through trade on Tuesday, unable to truly capitalise on the renewed demand for risk and the broader US dollar downturn. The surprise RBA policy announcement and significant underperformance of the AUD spilled over into NZD value ahead of the RBNZ policy update today and saw the currency trade within a relatively narrow range bouncing between supports at 0.5680 and intraday highs approaching 0.5760.
Our attentions turn now to the RBNZ policy announcement. We anticipate a 50-basis point adjustment in the OCR with direction moving forward predicated on policymakers expectations for future policy adjustment. Previously the RBNZ has indicated the peak Overnight Cash Rate will sit between 4 and 4.25%. Any adjustment in this narrative will spur price action across rates markets and could help propel a recovery in key NZD crosses. Having touched a 9 year low against the AUD last week, the RBA’s surprise decision and the possibility of an RBNZ yield advantage have helped propel the NZD back above 0.88
In other news, US ISM services data will be key in governing broader NZD direction. After the surprising downturn in Manufacturing activity earlier this week we anticipate a healthy read as consumers transition away from goods and back toward the service economy. A shock downturn in activity will likely elevate the current narrative and open the door for an NZD upturn.
Key MoversThe US dollar suffered a significant decline through trade on Tuesday amid a renewed demand for risk. The DXY dollar index plunged almost 1% in the day with the GBP and Euro leading gains. As is the current trend bad news is good news for equities and risk assets and a massive 10% decline in the US JOLTS job openings report raised calls for a possible correction in the pace of Fed policy adjustment. While the Fed continues to peddle an overtly aggressive monetary policy program signs of a slowdown in US economic activity and labour market strength could provide policymakers the impetus to pause or at the very least slow the pace of policy change. Our attentions turn now to ADP employment data ahead of Friday’s US non-farm payroll print, while ISM services data will prove pivotal in guiding the near-term risk agenda. As consumers transitions away from goods and back to services in the post-pandemic economy, we anticipate a healthy read and instead will look within the report for signals inflation pressures are transitioning. A shift in price pressure into the service economy will prove worrying for the Fed as it battles to control inflation and avoid a recession.
- NZD/USD: 0.5620 - 0.5780 ▲
- NZD/EUR: 0.5680 - 0.5830 ▼
- GBP/NZD: 1.9680 - 2.0120 ▲
- NZD/AUD: 0.8720 - 0.8880 ▲
- NZD/CAD: 0.7680 - 0.7820 ▼