NZD collapse extended as post RBNZ fallout continues
Friday 26 May, 2023
Daily Currency UpdateThe New Zealand dollar post RBNZ downturn continued through trade on Thursday, sliding below US$0.6050 to mark fresh 2023 lows. The fall out from the RBNZ’s dovish surprise on Wednesday continues to reverberate across the market with the NZD tumbling not just against the USD but all key crosses. Having tested a break above $0.94 against the AUD in the lead up to the policy announcement, the NZD is now clinging to $0.93 while sliding below 0.5650 against the euro and 0.4950 against the British pound. The sharp shift in domestic rate expectations has coalesced with a definitive and broader risk off mood. Markets remain preoccupied with US debt negotiations. Rating agency Fitch moved the US rating watch to negative, a signal it may be preparing to downgrade its AAA credit rating, while Moody’s eye a June 15 coupon deadline as a critical marker for default. Concerns the debt limit will not be raised or extended before funding runs out have risen this week as Republicans and Democrats struggle to find common ground. With early investor optimism eroding, the NZD has collapsed under the weight of risk aversion, while rising concerns surrounding the global growth outlook have compounded this week’s downturn. Having touched intraday lows at US$0.6044 the NZD looks set to close over 3.5% below the weekly open. With little of note on the domestic ticket to drive a recovery, our attentions remain affixed to US inflation data, debt ceiling negotiations, and the broader risk narrative.
Key MoversThe US dollar maintained its upward trajectory through trade on Thursday, buoyed by a sustained risk off environment. Despite signals recessionary forces are mounting, US treasury yields rose across the curve with two-year rates rising for a tenth consecutive session as markets look to price another 25-basis point rate adjustment. With US rates moving higher, UK rates added further gains, jumping 16 basis points as markets scrambled to price in significantly tighter monetary policy following the CPI shock earlier this week. Markets are not pricing another 110 basis points of tightening from the BoE. While this will undoubtedly assist the GBP in gaining a yield advantage it does little for UK growth prospects in an environment already devoid of development, which we anticipate will eventually weigh on the GBP. European rates also climbed amid expectations of ongoing ECB tightening, helping the euro stave off wholesale losses and suffer only a modest downturn. With global rates all higher, the JPY underperformed allowing the USD to push toward 140 overnight.
Our attentions turn now to Tokyo CPI data, US core PCE deflator data and ongoing US debt ceiling negotiations for direction into the weekly close.
- NZD/USD: 0.6020 - 0.6120 ▼
- NZD/EUR: 0.5580 - 0.5680 ▼
- GBP/NZD: 2.0120 - 2.0420 ▲
- NZD/AUD: 0.9250 - 0.9350 ▼
- NZD/CAD: 0.8220 - 0.8320 ▼