Home Daily Commentaries Kiwi slumps below 0.70 as fallout from Fed continues

Kiwi slumps below 0.70 as fallout from Fed continues

Daily Currency Update

NZD - New Zealand DollarThe New Zealand Dollar was one of the worst performers overnight as the rout on commodities and currencies continued through a second day. The fallout from the Fed’s hawkish update continues to drive a correction across risk assets, with NZD breaking below key technical supports. Down a further 1% overnight, the NZD broke below 0.70, touching lows at 0.6992 and is now firmly below the 200-day moving average, a previous support handle. The question now; has the market narrative changed or is this a simple short-term realignment? It is tricky to align the current monetary policy considerations with the recent move. Yes, the Fed has changed its tone and US rate hike expectations have been brought forward, but so too RBNZ expectations. In fact markets are pricing in a rate hike in H1 2022, while the Fed is expected to continue buying bonds at a rapid rate into the end of the year and leave interest rates flat through 2022 and into Q2 2023. While we expect the NZD may come under pressure from falling commodity prices, a normalisation in monetary policy expectations should help support the currency through the medium term. We are now watching the March low at 0.6943 as a key marker moving forward.

Key Movers

The US dollar remains firmly in the box seat enjoying the fallout from the Fed’s shift in tone and the current risk-off backdrop. The Dollar index closed higher for a fifth consecutive day and has recovered half the depreciation suffered in the three months since March. Advancing against all majors outside the Japanese yen, the dollar has forced the euro below 1.20 and 1.19, breaking its 200-day moving average, while sterling has been driven out of its 1.41-1.42 range, breaking below 1.40 and 1.39 to touch lows at 1.3897. Our attentions remain with the current shift in narrative as we seek signals to determine if this shift is part of a larger change in narrative or a knee jerk response to headline market event.

Expected Ranges

  • NZD/USD: 0.6940 - 0.7120 ▼
  • NZD/EUR: 0.5860 - 0.5920 ▼
  • GBP/NZD: 1.9650 - 2.0020 ▲
  • NZD/AUD: 0.9245 - 0.9320 ▼
  • NZD/CAD: 0.8630 - 0.8740 ▼