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Kiwi steady in face of looming global energy crisis

Tuesday 5 October, 2021

Daily Currency Update

NZD - New Zealand Dollar

The New Zealand dollar crept higher through trade on Monday, up 0.3% amid a broadly weaker USD. Despite a fall across global equities and rising concerns a global energy crisis will derail the pandemic recovery and global growth outlook. The NZD consolidated last weeks late gains, extending beyond 0.6950 to mark intraday highs at 0.6965. The NZD has struggled through recent months to extend beyond resistance at 0.7090/0.7100. With near term headwinds expected to remain in play through the foreseeable future we anticipate upside momentum will continue to be capped. Adding further pressure to the NZD are rising domestic COVID 19 case numbers. The 7-day moving average is now at its highest point in four weeks and appears unlikely to turn lower in the coming days. Auckland remains under level 3 restrictions with no further announcements made about easing restrictions. It appears the lockdown will be in place for much longer than first anticipated, potentially acting as a handbrake on what was an overheated domestic economy. The lockdowns have prompted a significant correction in RBNZ rate hike pricing with the Overnight Index Swap down at its lowest level in six weeks. While we still expect the RBNZ will raise rates on Wednesday, the likelihood of a 50-basis point hike has all but evaporated and we are more likely to see a 25point hike. The correction in yield expectations has exacerbated recent NZD weakness and we are keenly attuned to tomorrow’s policy update for further guidance and direction.

Key Movers

The US dollar opened the week on the softer side, giving up ground against most counterparts, unable to hold onto last weeks gains. The dollar index slipped some 0.3% as commodity currencies found support in surging oil, gas, and coal prices, while the Euro and GBP retraced last weeks downturn. Despite rising concerns the surge in energy prices is driving a global energy crisis investors seemed reluctant to drive a full-scale risk off push. Contrasting forces ensured conviction in direction remains largely absent and the door open for further volatility across currency markets moving through Q4. Our attentions today turn to US ISM services data. Having maintained an elevated level through recent months we expect a modest correction as the effects of the Delta variant are felt across the economy. We will also look to commentary from FOMC member Quarles and ECB President Christine Lagarde as they hit the wires. With rising energy prices expected to drive long run inflation pressure we are keenly attuned to any central bank signal that might suggest the commitments to accommodative monetary policy is wavering.

Expected Ranges

  • NZD/USD: 0.6880 - 0.7020 ▲
  • NZD/EUR: 0.5950 - 0.6020 ▲
  • GBP/NZD: 1.9480 - 1.9620 ▲
  • NZD/AUD: 0.9520 - 0.9620 ▲
  • NZD/CAD: 0.8720 - 0.8820 ▲