Home Daily Commentaries NZD remains entrenched in familiar range ahead of a string of critical risk events

NZD remains entrenched in familiar range ahead of a string of critical risk events

Daily Currency Update

The New Zealand dollar offered little to excite investors through trade on Monday, edging lower on the day as risk appetite soured ahead of a massive week filled with key data points, central bank policy and corporate earnings reports. As investors take pause, the NZD remains entrenched within a familiar trading bracket, struggling to extend beyond resistance at US$0.65 while finding support on moves approaching US$0.6450.

While Chinese PMI data and US employment costs dominate today’s ticket, attentions remain affixed to the Fed’s policy update and rate statement. Inflation pressures appear to have peaked bolstering calls for policymakers to temper the pace of rate hikes. With signs the US economy is running out of steam, a dovish Fed outlook and policy response could be the catalyst that sees the NZD surge through resistance at US$0.65.

Key Movers

Price action across major currencies was largely lacklustre through Monday as markets appear content in squaring positions ahead of a massive week filled with key risk events. Having enjoyed a resurgence through January risk appetite soured slightly amid fresh inflation concerns and an uptick in the global rates backdrop.

The US dollar found support amid a weaker risk profile while the Japanese yen faltered as global rates rose. While the yen found support early on comments from potential future Bank of Japan Governor Yuri Okina, wherein it was suggested the BoJ and government need to align and revise key policy objectives to tame inflation. With Okina tipped to replace the outgoing Kuroda, the comments drove expectations for a shift in policy and move away from yield curve controls, prompting a knee-jerk surge in JPY demand before the higher rates backdrop forced investors to give up gains.

Global rates pushed higher following a surprise uptick in Spanish CPI data. Annual price pressures rose by 5.8% in January, well above the 5.5% seen in December and way off estimates for a contraction to 4.8%. Spain is the first euro area country to release CPI data and suggests an upside surprise across the region may be coming.

An uptick in price pressures flies in the face of the narrative that inflation is easing and would force a rebalancing in euro area rate expectations. With markets pricing in a 50-basis point hike this week, elevated inflation pressures will likely force the ECB to maintain the pace of rate hikes and move away from calls to temper the pace of future rate adjustments.

Expected Ranges

  • NZD/USD: 0.6380 - 0.6520 ▼
  • NZD/EUR: 0.5900 - 0.6000 ▼
  • GBP/NZD: 1.8980 - 1.9220 ▼
  • NZD/AUD: 0.9120 - 0.9220 ▲
  • NZD/CAD: 0.8580 - 0.8720 ▲