Rising risk of global recession coupled with domestic outlook forces NZD lower
Friday 24 June, 2022
Daily Currency UpdateThe New Zealand dollar edged lower through trade on Thursday amid rising fears of global recession. Markets have shifted focus away from concerns surrounding inflationary pressures toward a deteriorating global growth outlook. While inflation remains elevated, input data and key markers suggest some stresses are beginning to ease, prompting investors to downgrade the terminal peak for central bank rate hikes. Consumer and business confidence has collapsed and as inflation pressures couple with rising interest rates, there is a real concern both the domestic and the global economy will tip into recession, not good news for the NZD. With both the domestic and global outlooks souring, the NZD slipped below 0.63 US cents to touch intraday lows at 0.6250. Having enjoyed a choppy overnight session, the NZD is marginally higher leading into this morning’s open and currently buys 0.6280 US cents. While testing new lows through the back end of the week, the NZD has held above key supports at 0.6220 and the Mid May-June low. With key technical supports in sight, a break below 0.6250 could prompt another run on the NZD.
With the country enjoying a public holiday long weekend, direction will stem from offshore drivers.
Key MoversThere was ample price action across major currencies through trade on Thursday, as lackluster macroeconomic data sets and a rising risk of recession prompted investors to re-assess positions relative to growth and interest rate expectations.
The euro crashed back below 1.05 following softer than anticipated Manufacturing and Services PMI data. The monthly measures of business conditions fell across the continent, with French, German and EU area data points all trending downward. Having touched intraday lows at 1.0480, the euro found some support creeping back above 1.05 to trade at 1.0523 on open today.
The GBP proved more resilient and while it slipped below 1.22 in the aftermath of the Euro area PMI print, it found support in stable domestic data. UK service and manufacturing data contracted through May, but remains in line with market expectations; these days that’s a win. Climbing back above 1.22, the GBP touched intraday highs at 1.2290, before settling at 1.2260 leading into this morning’s open.
With the market focus shifting away from rising inflationary pressures and toward the risk of recession, investors have tempered expectations for terminal interest rates, lowering upper end forecasts. The correction has helped the yen retrace some of its recent losses, forcing a 130-point correction in the USD. Our attentions today turn to Japanese CPI data. A print above expectations will make it difficult for the BoJ to maintain its current yield curve control policy and add mounting pressure on policy makers to change course, adding support to the JPY, while a softer read validates BoJ policy and will likely force investors to reassess JPY expectations.
- NZD/USD: 0.6220 - 0.6350 ▼
- NZD/EUR: 0.5920 - 0.6020 ▲
- GBP/NZD: 1.9380 - 1.9620 ▼
- NZD/AUD: 0.9030 - 0.9130 ▲
- NZD/CAD: 0.8080 - 0.8220 ▲