Home Daily Commentaries NZD among worst performers, dragged downward by Australian rates and weaker Yuan

NZD among worst performers, dragged downward by Australian rates and weaker Yuan

Daily Currency Update

The New Zealand dollar was the worst performer through trade on Wednesday, giving up more than 1% amid a risk-off mood and lower Australian inflation data. The Australian CPI report showed a steep correction in year-on-year price pressures through May prompting investors to reprice expectations for RBA tightening, forcing domestic yields lower. NZ swap rates were dragged downward in partnership with Australian rates, slumping 4-basis points across the yield curve. With domestic rates under pressure, the NZD fell sharply lower giving up US$.6150 and US$.61 to mark intraday lows at US$0.6070. With the PBOC delaying a stronger CNY fixing, the USD tracked above 7.25 for the first time this year adding more downward pressure on the NZD. With the NZD acting as a proxy for the Yuan among major markets the currency is weaker against all crosses. The NZD tracked below 0.46 against the GBP and 0.56 against the Euro while losing more than 1% against the Yen despite broad-based NZD weakness. Having surged through the middle of the month, moves approaching US$0.6250 have been firmly rejected and with a risk-off mood enveloping markets, the NZD is again trading within a familiar range.

Our attentions turn now to the ANZ business outlook survey, while Australian retail sales, German CPI data and US jobless claims dominate the offshore ticket.

Key Movers

The USD is broadly stronger this morning, buoyed by a risk of shift and broader softening in global rates. There's been no headline news to drive direction overnight as commentators from the Fed, European Central Bank, Bank of England and BoJ offered little to spark a shift in the current narrative when they addressed attendees to the ECB’s annual conference on monetary policy. With Jerome Powell, Christine Lagarde and Andrew Bailey reiterating the importance of tighter monetary policy to control inflation the Bank of Japan’s Ueda remains the lone outlier. Ueda claimed underlying inflation remains below 2%, justifying the bank's ultra-easy policy stance and offering little suggestion it would change its current yield curve control policy. With food and energy prices rising steadily in Japan and inflation now running over 4%, its highest level in over 40 years, there is a stark disconnect between market expectations and BoJ guidance. The USD moved back above 144 but gains were capped and the Yen found support in a broad decline in global rates. Treasury yields fell and German bund yields declined.

Our attentions turn now to German CPI data and US jobless claims.

Expected Ranges

  • NZD/USD: 0.6020 - 0.6180 ▼
  • NZD/EUR: 0.5480 - 0.5620 ▼
  • GBP/NZD: 2.0580 - 2.0980 ▲
  • NZD/AUD: 0.9150 - 0.9250 ▼
  • NZD/CAD: 0.8000 - 0.8150 ▼