Home Daily Commentaries NZD falters as US service activity rebounds

NZD falters as US service activity rebounds

Tuesday 6 December, 2022

Daily Currency Update

The New Zealand dollar opens lower this morning, having given up gains north of US$0.64 to trade nearer US$0.63. Further easing in China’s Covid restrictions designed to increase mobility and economic activity helped fuel Yuan upside, dragging the NZD toward intraday highs at US$0.6440 before a stronger than anticipated US ISM services data prompted a risk-off shift and USD rally. Markets remain sensitive to US monetary policy expectations and the surprise upswing in services activity helped drive US treasury yields higher while adding support to the USD as analysts re-position expectations for a peak Fed Funds rate. The NZD has fallen sharply through the latter hours of the overnight session, tumbling back through US$0.64 and US$0.6350 to trade at US$0.6312 at time of writing. With little of note on the domestic ticket, our attention turns to the Reserve bank of Australia. Having slipped below AU$0.90 in August and marking year-to-date lows marginally above AU$0.87 in September, the NZD has enjoyed a strong recovery against its antipodean counterpart through November and early December. A divergence in Monetary policy expectations has helped fuel NZD demand as the RBNZ maintains an uber aggressive monetary policy program, while the RBA has adopted a more measured and cautious platform. Having surged above AU$0.94 a dovish surprise from the RBA could help the NZD extend the upturn.

Key Movers

The US dollar was the day's big winner, advancing against most counterparts following the stronger than anticipated ISM services print. Friday’s surprise non-farm payroll print and robust wage growth update had prompted markets to pause selling down US treasuries and dollar holdings and Monday’s surprise uptick in services activity has forced investors to reposition fed policy expectations. While most analysts still anticipate the Fed will temper the size of rate hikes later this month there remains an expectation the benchmark or peak Fed Fund rate will move above 5% next year helping underpin support for the USD. Against a backdrop of higher rates the JPY, a standout performer last week, tumbled, giving up 1.7% on the day and allowing the USD to surge back above ¥136.50. US dollar strength also forced the Euro back below €1.05 and the GBP below £1.22. With little of note on today’s ticket, our attention remains on China and further changes to Covid restrictions ahead of an all important US inflation update and consumer sentiment review on Friday.

Expected Ranges

  • NZD/USD: 0.6280 - 0.6440 ▼
  • NZD/EUR: 0.5980 - 0.6090 ▼
  • GBP/NZD: 1.9120 - 1.9380 ▲
  • NZD/AUD: 0.9350 - 0.9480 ▲
  • NZD/CAD: 0.8520 - 0.8650 ▲