NZD underperforms despite RBNZ leading central bank race to normalisation
Thursday 7 October, 2021
Daily Currency Update
NZD - New Zealand Dollar
The New Zealand dollar was the worst-performing major currency on Wednesday falling 0.8% in the wake of the RBNZ’s decision to raise interest rates. The rate hike was well anticipated, and attentions quickly turned to expectations for future policy adjustments. Policymakers were quick to note the latest COVID-19 lockdowns are unlikely to throw them off course and the plan is to continue a return to neutral monetary policy over the next 18 -24 months. With few surprises offered there was little need for the market to adjust expectations and the market reaction was largely well contained, leaving the kiwi vulnerable to broader market forces and the risk-off correction. Having slipped below 0.69 US cents, the NZD touched intraday lows at 0.6877 before finds support and shifting back toward 0.6920 at the time of writing.
With global forces continuing to drive direction and near-term headwinds plaguing risk assets we expect the NZD to struggle on extensions beyond 0.7050 while finding support on moves below 0.6880.
Key MoversSafe-haven currencies outperformed through trade on Wednesday, capitalising on a broader risk-off shift as markets grapple with rising energy prices, consistent inflationary pressure, supply-side constraints and the prospect of tighter monetary policy. The JPY outperformed, capitalising on the risk-off tone, while the USD and CHF found support. The euro and GBP struggle to find any real momentum as the spectre of a full-blown 1970’s style energy crisis threatens to derail the economic recovery. Natural gas prices have surged higher through the last 6 months as European leaders scramble to ease supply constraints and avoid another catalyst for social unrest. Russia helped ease concerns by promising an increase in Ukraine pipeline supply, helping prices correct back to yesterday’s open, having surged up to 40% on the day. The euro plunged back below 1.16, testing a break below 1.1550, touching 1.1530 while the Great British pound slipped below 1.3550 to touch 1.3545 before edging back toward 1.36.
With near term headwinds and roadblocks expected to plague the global economic recovery through the near term we expect a continued run of volatility across major currencies throughout Q4. Our attentions turn now to Friday’s all-important Non-Farm payroll print. Wednesday’s ADP private payroll print surpassed expectation and while not always a reliable indicator of labour market performance it provides some hope the September print will push above 500,000 a key mark that should trigger the Fed to announce a program of QE tapering when it meets next month.
- NZD/USD: 0.6880 - 0.7010 ▼
- NZD/EUR: 0.5910 - 0.6020 ▼
- GBP/NZD: 1.9480 - 1.9720 ▲
- NZD/AUD: 0.9480 - 0.9590 ▼
- NZD/CAD: 0.8670 - 0.8780 ▼