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Kiwi stumbles as risk-off mood overwhelms markets

NZD - New Zealand Dollar

The New Zealand dollar fell sharply through trade on Wednesday, giving up all the gains enjoyed Tuesday amid a broader risk-off shift. Investors drove declines across equities, commodities and risk led currencies amid a decline in key commodity prices and a signal from the Fed it may bring forward plans to taper the size and scale of monetary policy support. Having tracked sideways through much of the morning, the NZD shifted off highs at 0.7250 late in the local session following reports china wanted greater oversight in commodity markets in a bid to control ongoing price appreciation. Having slipped below 0.72 US cents, the kiwi looked set to hold onto supports at 0.7180 before the FOMC meeting minutes showed several policymakers believe the time has come to 'begin discussing' tapering bond purchases. The revelation surprised markets, and while still the minority view, it was enough to push investors toward the USD and drive interest rate expectations higher. The NZD fell through support to mark intraday lows at 0.7150 before edging marginally higher into this morning’s open.

Attentions remain with the current risk narrative. Despite the volatility overnight the NZD remains firmly within the bounds of recent ranges, and we anticipate it will continue to fluctuate between supports at 0.7100 and 0.7300.

Key Movers

The US dollar outperformed on Wednesday, advancing across the board after the FOMC minutes showed that some policymaker's commitments to accommodative monetary policy was beginning to falter. Analysts had expected the April account would only affirm the Fed’s commitment to maintaining the current policy platform and a collective will to look through transitory inflation pressures. Instead, several members suggested it may be appropriate to 'begin discussing' tapering bond purchases. The suggestion appears caveated with the assumption the economy continues its rapid recovery but is still a move away from the recent rhetoric offered by Fed officials. Markets jumped on the shift in tone taking interest rates higher, pushing 10-year treasury yields toward 1.70% while driving a half percent increase in the dollar index. Attentions now turn to ongoing Fed commentary as a marker to any meaningful shift in policy. Despite the rally overnight the USD remains near multi-year lows with the expectation for ongoing weakness still intact for now.

The euro drifted back below 1.22 while sterling gave up 1.42 as attentions turn to a host of European and US PMI data prints Friday. PMI data provides a valuable insight into input costs and potential ongoing inflation pressures.

Expected Ranges

NZD/USD: 0.7080 - 0.7250 ▼

NZD/EUR: 0.5850 - 0.5930 ▼

GBP/NZD: 1.9580 - 1.9820 ▲

NZD/AUD: 0.9250 - 0.9320 ▼

NZD/CAD: 0.8630 - 0.8740 ▼