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Is this the beginning of a USD repositioning?

Wednesday 26 October, 2022

Daily Currency Update

The New Zealand dollar capitalised on ongoing USD softness through trade on Tuesday as markets continue to position for a slower pace of Fed rate adjustments. Having tracked sideways through much of the domestic session the NZD climbed off intraday lows at US$0.5670 marking session highs north of US$0.5770 following another string of underwhelming US data points. A 2nd consecutive monthly fall across house prices, coupled with a decline in consumer confidence and a downturn across key manufacturing indicators drove US 10 year and 2-year rates lower while driving equities and risk assets higher. The fallout from Chinese President Xi’s politburo re-shuffle continues to cast a pall over Chinese investment opportunities yet, the NZD was able to navigate through a spillover and broader CNY weakness through trade on Tuesday, a possible signal that the strong correlation between Yuan performance and the NZD may be breaking. A shift in NZD and CNY connectivity coupled with a USD downturn on the heels of a Fed pivot could open the door to a longer run NZD recovery. Our attentions now remain affixed to global rates, CNY performance and next weeks all important Federal Open Market Committee policy update.

Key Movers

The US dollar underperformed through trade on Tuesday, giving up ground against all major counterparts. The promise of a slower pace of Federal Reserve tightening and a possible pivot in near term policy has prompted markets to reassess USD values. The dollar has long been over valued and while it is too early to tell if this week's re-positioning means we have seen a peak in the USD there are signs now forming a move away from the world’s base currency is being pieced together. The GBP outperformed after former Chancellor Rishi Sunak was appointed Prime Minster. Sunak is expected to proffer a more austere fiscal framework and market friendly backdrop as evidenced in the GBP’s response. The Pound climbed 1.5% falling just short of a break above 1.15 and is now up 3.5% this week. In other news, the Euro is up through 0.9950 while the weaker rates backdrop has driven the dollar back below 148 against the Yen. Our attentions turn now to the Bank of Canada policy update

Expected Ranges

  • NZD/USD: 0.5670 - 0.6020 ▲
  • NZD/EUR: 0.5720 - 0.5820 ▲
  • GBP/NZD: 1.9720 - 2.0050 ▲
  • NZD/AUD: 0.8920 - 0.9050 ▼
  • NZD/CAD: 0.7780 - 0.7880 ▲