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Kiwi sinks to 5 week low as USD rallies amid surge in global rates

Tuesday 23 November, 2021

Daily Currency Update

NZD - New Zealand Dollar

The New Zealand dollar underperformed through trade on Monday marking a fresh 5 week low, amid a backdrop of higher global rates and growing concern the COVID Pandemic will act as a handbrake against the domestic economy over the next 12 months. Markets have largely priced in a tightening of RBNZ monetary policy and with a 170 basis points already built into 2-year mortgage rates we anticipate a weakening in consumer demand. As vaccination rates fail to meet targets the virus continues to spread outside Auckland and across the country. Rising inflation, higher interest rates and persistent public health lockdowns/restrictions will all weigh on the domestic economy and consumer through the months ahead presenting a dovish NZD outlook as we move toward 2022. Having ignored the rise in NZ-US interest rate spreads we expect broader global forces and Fed monetary policy will continue to drive direction. Having slipped back below 0.70 US cents a break below supports at 0.6950 and 0.6880 could open the door to another deeper downward correction.

Key Movers

The US dollar outperformed Monday buoyed by a rise in rates across the yield curve as investors continue to push expectations for tighter Fed monetary policy through H2 2022. Two years rates rose 7 basis points while 10 year rates jumped 5 as Biden re-appointed Jerome Powell as head of Federal reserve and FOMC. The higher global rates backdrop forced the Euro toward 1.12 touching new lows at 1.1236. The Single currency struggled amid a backdrop of renewed US dollar demand ad concern a rise in new Covid infections across the continent will derail the recovery and prompt another round of public health restrictions. This new spike and fourth wave is reportedly worse than those before it with officials warning health systems will soon be overwhelmed unless the spread is broken. With inflation concerns continuing to rise, new lockdowns couldn’t come at a worse time as the already embattled European economy struggles to stave off the threat of stagflation. The promise of accommodative monetary policy and a widening US-EU yield gap will likely place mounting pressure on the Euro through the months ahead. The GBP fell through 1.34 while the Yen also gave up ground down 0.7% as the USD surges toward 115. Our attentions remain with the global rates narrative with the US yield advantage likely to continue to drive USD gains.

Expected Ranges

  • NZD/USD: 0.6870 - 0.7020 ▼
  • NZD/EUR: 0.6130 - 0.6220 ▼
  • GBP/NZD: 1.9090 - 1.9350 ▲
  • NZD/AUD: 0.9580 - 0.9690 ▼
  • NZD/CAD: 0.8790 - 0.8870 ▼