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NZD underperforms amid uncertain start to the week

Tuesday 15 February, 2022

Daily Currency Update

The New Zealand dollar enjoyed a sluggish start to the week as the worst performer among key major currencies. The ever-present threat of conflict between Russia and Ukraine coupled with the looming promise of US monetary policy change forced the NZD off 0.6650 and below 0.66 US cents. The NZD touched intraday lows at 0.6595 after rumours Russia was preparing an invasion prompted volatility across risk assets, dragging equities and the NZD lower. Support however came quickly as President Putin debunked fears, appearing on television and affirming his desire for a diplomatic solution. The NZD pushed back above 0.66 yet struggled to gain any real upward momentum bouncing between 0.66 and 0.6620. While the direction was largely derived from offshore stimuli a string of second-tier domestic macroeconomic data offered little to bolster the NZD. Inflation across key core goods and a downturn in the performance of services suggest broader inflationary pressures are only expected to grow. Rising prices are squeezing consumers and businesses purchasing power, adding a tax on growth and downside growth risks. With little of note on today’s ticket, we continue to watch global bond markets and broader risk-led themes for direction.

Key Movers

The USD dollar outperformed most counterparts through trade on Monday, bolstered by a surge in US bond rates following uber hawkish commentary from key fed officials. St Louis fed President Bullard suggested the FOMC will need to raise rates by 100 basis points through the next 3 meetings if it is to properly curb inflation, pushing policymakers to front-load the removal of accommodative monetary policy. Such an aggressive approach would require the Fed to raise rates by 50 basis points next month and follow this with a further two 25 basis point hikes in May and June. Bullard’s comments were somewhat offset by commentary from Kansas City fed president George. George was much more measured in her approach, suggesting a systematic amendment to monetary policy was more appropriate so as not to spook markets and derail a post pandemic-recovery. The DXY dollar index extended back above 96 to mark intraday highs at 96.44 as the Euro, GBP, JPY and CAD all fell down some 0.2-0.4%. With little of note on today’s ticket, our attentions turn to Wednesday UK CPI inflation data and the US retail sales as key macroeconomic markets shaping monetary policy expectations.

Expected Ranges

  • NZD/USD: 0.6530 - 0.6650 ▼
  • NZD/EUR: 0.5820 - 0.5880 ▼
  • GBP/NZD: 2.0280 - 2.0550 ▲
  • NZD/AUD: 0.9230 - 0.9330 ▼
  • NZD/CAD: 0.8380 - 0.8480 ▼