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NZD recovery continues amid broader USD weakness and improved risk appetite

Wednesday 2 February, 2022

Daily Currency Update

The New Zealand dollar recovery continued through trade on Tuesday, climbing steadily and extending back through 0.66 US cents. Renewed demand for risk and a broad recovery across equity markets has spilled into commodities and currencies, helping the NZD mark intraday highs above 0.6640. Having entered oversold territory through the end of last week, a recovery was certainly on the cards, yet when put in context is primarily being driven by a broader USD correction and shift in the risk narrative rather than any meaningful resurgence in NZD strength. Having moved back within recent ranges, we expect the NZD will remain under pressure through the near-term as markets continue to adjust policy expectations and global growth forecasts.

Key Movers

The US dollar weakened through trade on Tuesday, giving up last week's surge amid a broad recovery in risk demand. The NZD and AUD have been the primary benefactors of the rebound in risk demand, with the GBP another standout performer. Sterling advanced half a percent on the day, pushing back through 1.35 marking intraday highs at 1.3530. The euro failed to take advantage of US dollar softness, struggling to extend beyond 1.1280 as markets pair moves ahead of this week’s ECB policy announcement. German 2-year bonds advanced above the ECB deposit rate at -0.5% for the first time since 2015 as markets price in an increased likelihood the ECB will raise interest this year amid rising inflationary pressures. Attentions have shifted to Thursday’s ECB policy update as a key marker in governing expectations for a potential September rate hike.

Expected Ranges

  • NZD/USD: 0.6540 - 0.6720 ▲
  • NZD/EUR: 0.5850 - 0.5950 ▲
  • GBP/NZD: 2.0180 - 2.0480 ▼
  • NZD/AUD: 0.9290 - 0.9350 ▲
  • NZD/CAD: 0.8350 - 0.8480 ▲