NZD marks new lows as markets pair back rate expectations amid recession risk
Thursday 7 July, 2022
Daily Currency UpdateThe New Zealand dollar extended the recent downturn, marking fresh 2-year lows below US$0.6150 amid sustained recession fears and a broadly stronger USD. The NZD tracked sideways through much of the day bouncing between supports at US$0.6170 and session highs at US$0.6190, before a stronger than anticipated US ISM services print and hawkish Fed meeting minutes helped propel the USD index toward new 20-year highs. While the improved macro outlook in the US did help to improve market sentiment the modest gains across key equity indices did not filter through to FX markets and those currency traditional aligned with risk sentiment forcing the NZD to mark intraday lows at US$0.6132.
With little of note on today’s domestic ticket, our attentions remain on the broader risk narrative. Further decline across key industrial commodities highlights the souring in the global growth outlook and elevated recession risk. With markets paring back expectations for RBNZ tightening and the markets' focus affixed to recession fears any NZD upside will be hard-won.
Key MoversThe US dollar rally continued through trade on Wednesday amid a stronger than anticipated performance across the service sector and an unsurprisingly hawkish FOMC meeting minutes. The ISM Service Index surprised investors, printing above estimates and showing a smaller than anticipated decline when compared with last month's read. While growth across the sector is decelerating, it has so far avoided the critical point of contraction and with the labour market still incredibly tight there is hope the Fed will be able to nurse the economy through a period of elevated inflation and avoid a heavy landing into recession. The Fed appears set on hiking rates by at least 50 basis points later this month with a 75-point hike priced in by a majority of analysts. The DXY Dollar index climbed to a new 20-year high up a further half a percent.
Dollar upside came at the expense of commodity currencies and the euro was the single currency that extended the week's earlier downturn crashing through US$1.02 to mark its lowest level in 20 years at US$1.0180. While key industrial commodity prices fall, European gas futures are soaring and prices rose a further 6% overnight. Strikes in Norway and fears Russia will add further controls on supply have elevated fears officials will have no choice but to introduce electricity rationing. As markets look beyond the current central bank tightening cycle the evolving energy crisis will be key in determining near-term euro direction. Having staved off a move toward parity in March, the critical and psychological handle is again in focus.
- NZD/USD: 0.6080 - 0.6230 ▼
- NZD/EUR: 0.5980 - 0.6120 ▲
- GBP/NZD: 1.9180 - 1.9480 ▼
- NZD/AUD: 0.9020 - 0.9120 ▼
- NZD/CAD: 0.7980 - 0.8080 ▼