Daily Currency Update

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Kiwi vulnerable to asset market volatility

NZD - New Zealand Dollar

The New Zealand dollar bullied its way back above 0.72 US overnight amid a softening across key US manufacturing data sets and 10-year treasury yields. In what was a quiet start to an otherwise busy week the NZD tracked sideways through the domestic session bouncing between 0.7155 and 0.7180. Investors seemed content in monitoring positions, reluctant to extend beyond recent bounds as volatility across asset markets grows. While we expect the NZD will outperform through year end there are short term headwinds emerging through the start of the month. Having enjoyed upside through April the NZD is now vulnerable to a broader consolidation across risk assets and elevated US treasury yields. If domestic rates fail to keep pace with the ongoing US upswing, we would anticipate some softness for the NZD through May. Our attentions turn now to Wednesday’s labour market and unemployment print and commentary from RBNZ Governor Orr for short term direction.

Key Movers

The US dollar failed to hold onto the gains enjoyed on the back of Fridays month end rebalancing slipping against most major counterparts amid softer ISM manufacturing data and a drop in US treasury yields. The dollar index is down 0.35% Monday after the ISM manufacturing index unexpectedly fell off multi year highs after purchasing managers reported consistent inflationary pressures and an inability to keep up with demand thanks to pandemic induced constraints to supplies. The softer than anticipated print when coupled with a correction in 10-year treasury yields forced the dollar lower against the Euro, GBP and JPY. While the Euro and JPY showed only modest gains Sterling pushed back through 1.39 bucking the usual seasonal downturn. Traditional the GBP struggles through May, contracting through the month for each of the last 11 years. Having started the month on a positive note amid easing restrictions and an ongoing vaccine rollout there is some optimism Sterling could grind higher. Our attentions turn to Thursday Bank of England policy announcement. We expect they will remain on hold yet acknowledge a faster than projected economic recovery to date. A hawkish surprise could help force the GBP beyond resistance at 1.40.

Expected Ranges

NZD/USD: 0.7130 - 0.7250 ▲

NZD/EUR: 0.5920 - 0.6010 ▲

GBP/NZD: 1.9080 - 1.9420 ▲

NZD/AUD: 0.9220 - 0.9320 ▼

NZD/CAD: 0.8780 - 0.8890 ▲