NZD resilient in face of more domestic economic pressures
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Daily Currency Update
The New Zealand dollar extended its recovery through trade on Monday, pushing back above US$0.61, amid broader US dollar weakness. Markets largely ignored another poor domestic macroeconomic print as the Business Services Index shows conditions remain deeply within contractionary territory. With the BNZ cutting rates for the first time last week, calls are growing for officials to accelerate policy normalisation and a move back to a neutral policy setting.Having tracked sideways through the local session, higher risk appetite fuelled an extended NZD recovery overnight as markets expanded on Fed rate cut bets and price in a higher probability of a 50-point rate cut coming into the September Fed policy meeting. Having touched session highs just north of US$0.6110, the NZD opens this morning having held onto gains above US$0.61.
With little of note on today’s ticket, our attentions turn to the FOMC meeting minutes tomorrow and the underlying risk narrative for direction into Services and Manufacturing PMI data Thursday and the Jackson Hole Symposium on Monetary Policy Friday.
Key Movers
The USD fell through trade on Monday as US treasuries retreated and equities surged amid rising expectations for Fed rate cuts through September and into the end of the year. The DXY index fell to its lowest point since January and markets have now fully priced a 25-point rate cut come the September policy meeting with calls growing for policymakers to issue a larger 50-point cut as cracks appear in the labour market.Fed focus has shifted in recent weeks with committee members moving away from a single focus on inflation and back toward its dual mandate and protecting labour market stability. Our attentions in this week turn to the Jackson Hole Symposium on Monetary Policy where we expect Fed Chair, Jerome Powell, will acknowledge the need for a rate cut. With nearly 90 points of cuts priced into the end of the year, the USD is vulnerable to further downside risk, particularly as focus turns to the Democratic convention and the US Presidential race.
Gains the dollar made through July on the back of rising expectations former President, Donald Trump, would take back the White House have faded as Democratic Nominee, Kamala Harris, pulls ahead of Trump across key swing states. Looking beyond the near term we expect the dollar will face headwinds as markets unwind yields and Fed rates are loosened. With a hotly contested US presidential race culminating in November, there is still plenty to drive volatility into the end of 2024.
Expected Ranges
- NZD/USD: 0.6020 - 0.6150 ▲
- NZD/EUR: 0.5450 - 0.5550 ▲
- GBP/NZD: 2.1100 - 2.1400 ▼
- NZD/AUD: 0.9020 - 0.9120 ▼
- NZD/CAD: 0.8280 - 0.8380 ▲