Risk-off mood forces steep NZD correction
Wednesday 5 May, 2021
Daily Currency UpdateNZD - New Zealand DollarThe New Zealand dollar underperformed through trade on Tuesday, hampered by a risk-off shift that overwhelmed financial markets. The NZD followed falls in US equities and a heightened demand for safe haven currencies to test a break below 0.7150 touching intraday lows at 0.7120. The Global Dairy Auction offered few surprises, largely printing flat and offering little defence in the face of a broader risk correction. The NZD remains vulnerable to ongoing fluctuations in risk demand, hamstrung by near-term pandemic uncertainties. While we expect the NZD will find support through the medium term, the outlook through the weeks ahead suggests there is scope for a short-term downturn. Our attentions turn now to the RBNZ financial stability report and key domestic wage and employment data. The financial stability report will likely have little impact on NZD value while a surprise downturn in unemployment could help foster a run back toward 0.72 US cents.
Key MoversSafe Haven currencies outperformed through Tuesday, buoyed by a risk-off mood permeating financial markets. Substantial falls in US equities and a correction in treasury yields fostered a 0.3% uptick in the dollar index. Commentary from Treasury Secretary Janet Yellen unnerved investors as the former Fed Chair suggested if Biden’s fiscal stimulus plans were enacted they will likely result in a need to push interest rates higher in a bid to stop the economy from overheating. The statement contradicts her previous dovish stance. While the USD, CHF and JPY lead gains, sterling held steadfast slipping only marginally below 1.39. The pound was the worst performing major currency through April and while May is typically a month in which the currency faces seasonal headwinds, it has so far enjoyed renewed demand as the vaccine roll out remains on track and the economy trudges toward a full-scale re-opening in July. Attentions this week remain with the Bank of England policy statement and US non-farm payroll data as the big ticket items headlining the macroeconomic agenda.
- NZD/USD: 0.7080 - 0.7250 ▼
- NZD/EUR: 0.5890 - 0.5980 ▼
- GBP/NZD: 1.9250 - 1.9520 ▲
- NZD/AUD: 0.9230 - 0.9340 ▼
- NZD/CAD: 0.8730 - 0.8850 ▼