Home Daily Commentaries New Zealand dollar trades below 62 US cents

New Zealand dollar trades below 62 US cents

Daily Currency Update

The Kiwi dollar is slightly weaker this morning when valued against the Greenback trading lower initially overnight Friday making a fresh weekly low near 0.6120 before rebounding into the global close. The NZD underperformed on the European crosses and NZD/AUD made modest gains to 0.9260. The US dollar Index (DXY), a measure of the value of the Greenback against six other major currencies, jumped to its highest level since July 11, near 101.70, as upbeat US economic figures boosted the Greenback on Friday. The Reserve Bank of New Zealand (RBNZ) maintained the official cash rate (OCR) unchanged at 5.50% in the July meeting, which triggered further downside on the Kiwi. However, the downside potential for the NZD/USD pair appears limited as the market expects a more hawkish stance from the RBNZ.
Looking ahead this week in New Zealand and today we will see the release of the ANZ Business Confidence survey of about 1,500-2,000 businesses which asks respondents to rate the relative 12-month economic outlook. On Tuesday Statistics New Zealand will release the monthly Building Consents a leading gauge of future construction activity because obtaining government approval is among the first steps in constructing a new building. On Wednesday all eyes will be on the unemployment rate decision which is expected to increase from 3.4% to 3.5%. Although it's generally viewed as a lagging indicator, the number of unemployed people is an important signal of overall economic health because consumer spending is highly correlated with labor-market conditions. Finally, on Thursday we will see the release of the ANZ Commodity Price Index which tends to have a muted impact because the tightly-correlated Australian commodity prices are usually released a few days earlier.

Key Movers

Last week in the United States Gross Domestic Product (GDP) expanded at an annualized rate of 2.4% in the second quarter, first estimates showed on Thursday. This reading followed the 2% growth recorded in the first quarter and surpassed the market expectation of 1.8% by a wide margin. On Friday we saw an unexpected rise in the Federal Reserve's (Fed) preferred inflation gauge, Personal Consumption Expenditure (PCE), on a month-on-month basis, which keeps up the downside pressure on the pair. Headline PCE rose by 0.2% on a MoM basis in June – well above the -0.1% forecast and the 0.1% previous, according to data from the US Bureau of Economic Analysis on a YoY basis PCE rose by only 3.0%, which was below the 3.1% expected and 3.8% reported in May. Core PCE gained 0.2% MoM, in line with expectations and below the previous month of May's 0.3%. On a YoY basis, it showed a lower 4.1% increase in prices compared to the 4.2% expected and 4.6% previous. Initial Jobless Claims on Friday decreased by 7,000 to 221,000 in the week ending July 22 below the 235,000 gain forecast. Continuing Claims fell to 1.69 million versus the 175M forecast. While Durable Goods Orders jumped 4.7% on a monthly basis to reach $302.5bn, according to the US Department of Commerce, in seasonally adjusted terms.
The Bank of Japan (BOJ) announced on Friday “greater flexibility” in its monetary policy surprising global financial markets. In its policy statement, the BOJ said it will continue to allow 10-year Japanese government bond yields to fluctuate within the range of 0.5 percentage point on either side of its 0% target but it will offer to purchase 10-year JGBs at 1% through fixed-rate operations. This effectively expands its tolerance by a further 50 basis points. The yield curve control is a long-term policy that sees the central bank target an interest rate, and then buy and sell bonds as necessary to achieve that target. It currently targets a 0% yield on the 10-year government bond to stimulate the Japanese economy, which has struggled for many years with disinflation. This matters because the BoJ’s ultra-low interest rate policy was one of the few remaining forces anchoring long-term bond rates. The Japanese sharemarket plunged 2 per cent.

Expected Ranges

  • NZD/USD: 0.6050 - 0.6250 ▼
  • NZD/EUR: 0.5480 - 0.5680 ▼
  • GBP/NZD: 2.0730 - 2.0930 ▲
  • NZD/AUD: 1.0680 - 1.0880 ▼
  • NZD/CAD: 0.8050 - 0.8250 ▲