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NZD consolidates as global rates continue relentless hike higher

Wednesday 20 April, 2022

Daily Currency Update

The New Zealand dollar found support through trade on Tuesday edging off lows suffered through the Easter long weekend and consolidating above 0.6720 US cents. Global rates continue to march higher with US 10-year rates and real yields pushing toward multi-year and post-pandemic highs as markets rush to price in an aggressive adjustment and normalisation in central bank monetary policy led by the Federal Reserve. NZD rates were up 5-6 basis points right across the curve, offset by an equal rise in US rates as bond rates around the world rallied. Having given up the post-RBNZ rally toward 0.70, the NZD remains at the mercy of global rates and the extension in US rates in particular. Markets fully expect the Fed will move to increase rates by 50 basis points next month while announcing a schedule of aggressive hikes in a bid to control inflation and normalises monetary policy. As US yields extend their advantage against most major counterparts and markets continue to ignore domestic monetary policy updates, the NZD will likely remain under pressure. Our attentions turn now to quarterly CPI data tomorrow as a critical market for domestic performance.

Key Movers

While price action across major currencies was somewhat subdued through trade on Tuesday, the relentless uptick in US rates and real yields pushed the USD toward and through 20-year highs against the Japanese yen while the Swiss franc struggled to find any real support. Having started April below 120, the USD surged toward 129 marking intraday highs above 128.91 as the uptick in US 10-year real yields and the suppression of Japanese rates under the current yield curve control platform saw the gap in yield return widen, accelerating demand for the US dollar. Markets appear intent on driving the JPY lower in a bid to elicit a response from the BoJ which finds itself stuck in an unenviable position. Inflation is still too low to consider normalising monetary policy yet the correction in the JPY over the last 6 weeks has prompted increased political pressures as the cost of imported goods skyrocket and near-term price pressures increase. With the Swiss National Bank facing a similar predicament and refusing to move off official interest rates at -0.75% the franc fell a further 0.7% overnight and continues to lag most major counterparts. Yields and global rate performance continue to dominate direction and anything that purports to shift the yield gap is going to drive direction through the near term.

Expected Ranges

  • NZD/USD: 0.6680 - 0.6820 ▲
  • NZD/EUR: 0.6220 - 0.6280 ▼
  • GBP/NZD: 1.9180 - 1.9350 ▼
  • NZD/AUD: 0.9080 - 0.9150 ▼
  • NZD/CAD: 0.8470 - 0.8520 ▲