NZD unable to hold onto post RBNZ bounce
Thursday 6 April, 2023
Daily Currency UpdateThe New Zealand dollar opens this morning in much the same position as it stated Wednesday, unable to hold onto gains enjoyed in the wake of the RBNZ policy update amid risk-off flows and safe haven demand. The RBNZ maintained its aggressive program of monetary policy tightening, lifting rates by 50 basis points and taking the official cash rate to 5.25%. With the market largely expecting policymakers would taper the pace of rate hikes and issue just a 25-point adjustment, the 50 point correction prompted an immediate upward spike in the NZD, touching intraday highs just north of US$0.6370. The NZD was unable to hold onto gains amid an elevated risk-off mood. Reports Western Alliance Bancorp had suffered a sharp decline in deposits through Q1 spooked investors and prompted an immediate correction across key equity indices as markets immediately feared the worst. Safe haven flows dominated direction, forcing the NZD back toward its Pre RBNZ level and US$0.63/0.6320.
Our attentions turn now to US Non-Farm payrolls data Friday. With markets closed for Easter, we could well see elevated price action overnight as investors look to square positions. With employment conditions softening, a modest print could drive down Fed rate hike expectations and help the NZD climb back toward US$0.6380/0.64.
Key MoversA risk-off tone dominated direction through trade on Wednesday, allowing the USD to shrug off another round of softer-than-anticipated macroeconomic data sets. ADP private payroll data and an ISM services index update both point toward a softening labour market and a decline in consumer economic activity. With Jobs growth slowing and wages projected to fall, pressure to adopt a softer approach to Monetary Policy tightening is growing. While enjoying modest gains against the Euro, GBP and commodity-driven currencies, the USD fell against the Yen. Amid a backdrop of lower global rates and a risk-off mood, the Yen outperformed on Wednesday, forcing the USD back toward 131.
With US data turning negative this week, our attention shifts to US non-farm payrolls for a more in-depth and detailed review of labour market health. While employment conditions remain steady, signs are emerging to suggest the power is shifting away from employees. With quit rates falling and new employment opportunities declining, we anticipate only a modest uptick in Jobs growth through March. Consensus expectations suggest a further 240,000 jobs were added through the month while the unemployment rates should remain flat and wage inflation taper. A softer-than-anticipated read could drive down peak Fed fund rate expectations and elevate calls for the Fed to pause its tightening cycle in May. With the US seemingly running headlong toward recession, labour market date will prove key in shaping policy expectations and near team dollar direction.
Please Note, there will be no commentary delivered over the Easter Long Weekend. Our next report will be sent Tuesday, April 11th.
- NZD/USD: 0.6250 - 0.64 ▲
- NZD/EUR: 0.5720 - 0.5820 ▲
- GBP/NZD: 1.9480 - 1.9880 ▼
- NZD/AUD: 0.9280 - 0.9450 ▲
- NZD/CAD: 0.8420 - 0.8550 ▲