NZD edges upward amid improved risk backdrop and weaker US growth outlook
Friday 28 April, 2023
Daily Currency UpdateThe New Zealand dollar edged upward through trade on Thursday, clawing its way back toward US$0.6150 amid an improved risk backdrop and softer US growth projections. Having opened only marginally above US$0.61 the NZD climbed steadily through the later half of the domestic session and early overnight trade as risk sentiment improved amid receding fears for the US banking system. After touching intraday highs at US$0.6155 the NZD fell sharply following the release of US Q1 GDP data. Despite a marked slowdown in annual growth investors focused on key inflation indicators, driving near term treasury rates and the USD higher. Having slipped back below US$0.610 the NZD then found support as markets delved deeper into the quarterly growth report. With the economy stagnating and pitching toward recession the pressure is mounting on the Federal Reserve to end its tightening cycle. our focus turns now to US employment costs and the PCE deflator index as critical markers for inflation and labour market performance ahead of next week's FED meeting. Near term NZD fortunes hang on Fed guidance. If policymakers signal a pause in rates beyond the May meeting the door opens for an extended NZD recovery.
Key MoversThe US dollar finishes Thursday flat as markets fight contrasting drivers, while the Euro weakened, and the JPY slid amid a higher rates backdrop. The USD dollar lurched upward immediately following the Q1 GDP data release as markets attached elevated importance to key inflation indicators. While growth printed below consensus expectations inflation pressures were higher boosting treasury yields and expectations the Fed may be forced to extend its tightening cycle if it is to bring inflation back toward the target. Having forced the Euro back below 1.10 and advancing back above 134 against the Yen the dollar set about giving up gains. Growth projections signal the beginning of a recession and the Fed must now balance the need to depress price pressures while elevating economic activity. Most analysts have priced in a 25-basis point hike next week. The question is, will that be the peak Fed funds rate? Fed guidance will be critical in shaping dollar performance and our attention turn to Tonight’s employment cost index. If wage inflation continues to stabilise there is then added scope for the Fed to pause further rate hikes, while an upward surprise gives policymakers license to stick with the current platform, lifting peak rate expectations. Next week's Fed policy meeting will prove critical in determining near and medium-term currency direction.
- NZD/USD: 0.6080 - 0.6180 ▲
- NZD/EUR: 0.5530 - 0.5630 ▲
- GBP/NZD: 2.0080 - 2.0420 ▼
- NZD/AUD: 0.9230 - 0.9330 ▲
- NZD/CAD: 0.8280 - 0.8420 ▼