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NZD marks new lows as USD index hits 5 year high

Thursday 28 April, 2022

Daily Currency Update

The New Zealand dollar tracked lower through trade on Wednesday marking new lows amid broad-based US dollar strength. The NZD pushed toward intraday highs at 0.6590 through the domestic session enjoying some spillover from the surprise upside in Australian quarterly CPI data and optimism surrounding easing restrictions in China’s COVID-19 protocols. The increase in RBA rate expectations and an uptick in short-end yields spilled over into NZ markets driving an uptick across 2-year swaps while forcing estimates for rates at the end of the tightening cycle to edge closer to 4%. Having seemingly found support at 0.6570 through the local session, the NZD was forced lower overnight amid sustained USD support. Expectations for Fed tightening continue to grow while a delicate risk narrative ensures direction and drivers remain firmly behind the world’s base currency. Breaking below 0.6550, the NZD touched intraday lows below 0.6530 and remains vulnerable to ongoing near-term downside as monetary policy expectations, a precarious global growth outlook and the war in Ukraine present consistent headwinds to any upward move.

Key Movers

The US dollar continued to break new highs through trade on Wednesday with the DXY dollar index marking a new 5-year peak and pushing above 103 amid expectations for Fed monetary policy tightening and a brittle risk narrative. The recent USD surge has been underpinned by a collapse in the euro. The single currency marked a 5-year low overnight touching 1.0515 before moving back above 1.0550 to touch 1.0570. Reports Bulgaria has been the second country cut off from Russian gas supplies having refused to pay in Rubles drove gas futures higher. Prices exploded surging 30% at one point before correcting back and closing 10% higher on the day and 16% higher through the last 48 hours. While prices remain well below the peak made last month there are real concerns other countries will follow Poland and Bulgaria. Germany is heavily reliant on Russian gas supplies and with payment due in May refusal to pay in Ruble will only amplify the burgeoning energy crisis. Our attentions today turn to the Bank of Japan policy meeting. The JPY has given back gains enjoyed in recent days as the USD pushed back above 128 after a brief dip below 127. The steep fall in the JPY through the last month brings today’s meeting into sharp focus. While we expect policymakers will maintain the ultra-easy policy setting recent weakness in the yen could prompt an adjustment in forward guidance and the possible hint of future changes to yield curve controls. Maintenance of the status quo could prompt another run on the yen and drive dollar gains beyond recent highs.

Expected Ranges

  • NZD/USD: 0.6520 - 0.6620 ▼
  • NZD/EUR: 0.6150 - 0.6230 ▲
  • GBP/NZD: 1.9050 - 1.9250 ▲
  • NZD/AUD: 0.9150 - 0.9230 ▼
  • NZD/CAD: 0.8350 - 0.8450 ▼