Global headwinds ensure NZD upside contained through the near term
Tuesday 10 August, 2021
Daily Currency UpdateThe New Zealand dollar tracked lower through Monday amid a downturn in demand for risk assets and weakness across commodity prices. Investors adopted a cautious tone to start the week as bond markets began pricing in a tapering of Fed QE following last Friday’s bumper non-farm payroll print and uncertainty surrounding the spread of the Delta variant prompted a shift toward haven currencies. Having climbed off lows below 0.70 US cents through the domestic session the NZD touched intraday highs at 0.7025 yet was unable to hold onto gains, drifting lower overnight, slipping back below 0.70 to open at 0.6991.
Fundamentally the NZD remains grossly undervalued. With the RBNZ set to begin monetary policy normalisation as early as next week and the domestic economy enjoying a rapid post pandemic recovery, we would ordinarily expect the kiwi to be testing highs nearer fair value, but such is the risk narrative at present and concern surrounding the Delta variant. As the highly infections strain rips through Asia optimism surrounding the economic recovery in region has faltered. With global headwinds outweighing domestic outperformance we expect the NZD will face sustains downside pressure through the medium term.
Key MoversThe US dollar is broadly higher as the Bloomberg dollar index advanced 0.2% through trade on Monday, buoyed by a heightened demand for haven currencies and decline in appetite for risk assets. Concerns surrounding the rapid global increase in new Covid-19 infections as the Delta variant rips through countries and regions with low vaccination rates continues to weigh on investors. Previous hopes the global economy may begin a return to normal by the end of 2021 are faltering as the highly infectious strain forces governments to wind back eased restrictions and impose new social distancing orders in a bid to reduce the burden on an already overrun health care system. While the demand for the USD has shifted off the highs enjoyed through July we anticipate the worlds base currency will continue to enjoy support as global economic headwinds continue to drive direction through the near term.
The Euro slipped below 1.1750 to mark a fresh 3 month low while Sterling fell below 1.3850 touching 1.3846.
With little of note on today’s macroeconomic tickets our attentions turn to Wednesday US CPI inflation report. With leading indicators suggesting no relief in rising input costs and supply side constraints we expect another elevated print. Transitory inflation pressures appear set to linger through the medium term only adding to calls for the Fed to normalise monetary policy in an attempt to stabilise prices.
- NZD/USD: 0.6930 - 0.7050 ▼
- NZD/EUR: 0.5920 - 0.5990 ▲
- GBP/NZD: 1.9680 - 1.9920 ▼
- NZD/AUD: 0.9490 - 0.9580 ▲
- NZD/CAD: 0.8750 - 0.8830 ▼