NZD eyes break above US$.60 amid renewed demand for risk
Daily Currency UpdateThe risk appetite rebound continued through trade on Tuesday driving global rates lower and the NZD higher. After a relatively quiet domestic trading session, the NZD explored a break toward US$.60, touching intraday highs at US$0.5998. Speculation China will start to transition away from its Covid-Zero policy in the new year continued, fueling renewed demand for risk. The NZD outperformed up almost 1% on the day before pairing gains leading into this morning’s open where it currently buys US$0.5960. With little of note on today’s domestic macroeconomic ticket, our attentions remain with China, while commentary from New York Fed President John Williams should offer a more detailed insight into Fed policy and FOMC strategy and the US midterm elections offer some much needed colour. In lieu of any major shift in narrative and shock election result, we anticipate market moves will be largely contained as investors focus remains squarely affixed to Thursday’s US CPI inflation print. Amid speculation policy makers are set to slow the pace of rate hikes and upside inflation surprise could quash the recent risk rally and force the NZD back toward ranges between US$0.5600 – US$0.5900 while a downturn in price pressures could see the currency extend gains and consolidate a break above US$0.60.
Key MoversThe US dollar explored new lows and is broadly weaker this morning after turning lower against a majority of counterparts overnight. Renewed demand for risk amid speculation China will be to pivot away from a Covid Zero policy in the new year coupled with a move lower in global rates and US treasury yields forced the dollar index to give up 0.5%, extending Friday’s downturn. The correction in global rates and decline in US treasury yields has driven JPY gains forcing the USD back below 146, much to the relief of the Ministry of Finance. Dollar weakness also helped the Euro consolidate a break above parity while the Pound extended its push above 1.15.
With little of note on today’s macro ticket, our attentions remain with China and the US mid term elections. We anticipate few surprises from the US elections with republicans expected to retake the house and possibly garner control of the Senate. A government in gridlock should support equities and markets as the fiscal policy will likely be constrained through the next 2 years. With a recession looming the promise of reduced fiscal support adds more pressure on the Fed, and a major downturn could see a sharp reversal of the recent program of tightening adding downward pressure on the USD through 2023.
- NZD/USD: 0.5880 - 0.6020 ▲
- NZD/EUR: 0.5870 - 0.5980 ▲
- GBP/NZD: 1.9220 - 1.9520 ▼
- NZD/AUD: 0.9080 - 0.9180 ▼
- NZD/CAD: 0.7950 - 0.8080 ▲