NZD rallies as risk sentiment improves
Wednesday 18 May, 2022
Daily Currency UpdateThe New Zealand dollar rallied through trade on Tuesday buoyed by positive COVID-19 reports from China and a slew of stronger data sets out of the US, UK and Europe. Having struggled to extend beyond 0.63 US cents through trade on Monday reports Shanghai recorded a third consecutive day of zero community transmission emboldened investors to chase risk assets higher amid hopes lockdowns will soon be lifted. Having pushed off intraday lows at US$0.6310, the NZD extension continued through the overnight session following better than expected UK employment data, US retail sales and Q1 Euro GDP data. The surprise uptick in Q1 data points has helped ease near-term recession fears and pave the way for a potential rebound in H2 should headwinds abate. A sustained improvement in the underlying risk narrative should help the NZD recover losses suffered through the last 4 weeks, however, risks to the downside remain in play. While Shanghai appears to have halted Omicron’s advance outbreaks in other provinces have not yet been quashed and with a new pocket of infections found in Beijing it is unlikely we will see China enjoy a return to full capacity in the near term. The transmissible nature of the Omicron variant will mean spot lockdowns and restrictions will remain in play until the pressures of COVID-19 ease or China amends its current policy. Furthermore, we expect major central banks will maintain the current hawkish bias further tightening monetary policy conditions while the conflict in Ukraine ensures supply chains remain stretched and key commodities scarce. With little of note on today’s macroeconomic tickets, our attentions remain with the broader risk narrative for direction.
Key MoversThe euro and the pound carried the day on Tuesday, advancing on the heels of stronger than anticipated local data points and a general recovery in the underlying risk narrative. The pound lead gains across major currencies up over 1% following a surprise decline in the unemployment rates. Job vacancies rose in March while unemployment fell to 3.7% its lowest level in almost 50 years. Hopes improved labour market conditions will help drive the economy through near term headwinds created by rising inflation and a slowdown in growth propelled the GBP back through US$1.2450 and toward intraday highs just shy of US$1.25. The euro followed pound’s lead, pushing back above US$1.05 after Q1 GDP data was revised higher while comments from ECB policymaker Knot helped boost expectations for a shift in monetary policy conditions as soon as July. The suggestion of a 50-basis point hike helped propel an uptick in market rate expectations with investors now pricing a 100 basis point uptick by year end.
Our attentions turn now to UK CPI data, US housing data and Canadian CPI as markers that could possibly disrupt the underlying risk narrative.
- NZD/USD: 0.6280 - 0.6420 ▲
- NZD/EUR: 0.5980 - 0.6080 ▼
- GBP/NZD: 1.9450 - 1.9750 ▲
- NZD/AUD: 0.9020 - 0.9090 ▲
- NZD/CAD: 0.8090 - 0.8220 ▲