Down, Down; the Kiwi is Down
Friday 2 September, 2022
Daily Currency UpdateThe New Zealand Dollar underperformed through trade on Thursday, tumbling below 0.61 US cents amid elevated risk aversion and stronger than anticipated US macroeconomic data. The NZD came under pressure from the open, giving up 0.61 US cents mid-way through the domestic session. Having seemingly found support at 0.6080 the NZD staged a recovery leading into overnight trade, punching back above 0.61 to touch 0.6110 before news the Chinese city of Chengdu, a manufacturing hub, would be thrust into lockdown amid a new Covid outbreak flattened investors' demand for risk. Having slipped back below 0.61 the NZD tested new lows touching 0.6060 and appears poised to break 2-year lows and the psychological 0.60 handle. Stronger than anticipated US manufacturing and labour market data prompted markets to all but fully price in a 75-basis point Fed rate hike later this month and helped fuel a surge in US rates and the dollar. Momentum remains firmly behind the world’s base currency as a deterioration in the global growth outlook and tighter financial conditions steamroll markets' risk appetite. Our attentions turn now to US non-farm payroll data. We expect another robust month of jobs growth and stability across the unemployment rate, underpinning expectations for a 75-basis point hike later this month. A strong read will heap more pressure on the embattled NZD and could prompt a move toward and below the mid July low.
Key MoversPrice action abound through trade on Thursday as the US dollar surged higher on the heels of a stronger than anticipated data set and broader risk off shift. A robust ISM manufacturing print coupled with a downturn in US jobless claims fueled expectations for a 75-point Fed rate hike later this month. Markets are now pricing a 75% probability the FOMC will raise rates by 75 points in a bid to control near term inflation pressures. The stronger data drove US rates higher, lifting 10-year yields to 3.25%, a staggering 13 points up on yesterday. The backdrop of stronger rates saw the US dollar index mark new 18-year highs as the dollar forced the Euro back below parity and powered above 140 against the Yen its highest level in almost 25 years).
In other news the PBOC set the Yuan fix at a stronger than anticipated level for a fifth consecutive day as policymakers attempt to slow the pace of CNY depreciation, while showing signs of stability in the Asian session the yuan continued its bearish trajectory overnight as the USD extended above 6.90 and appears set on a breaking the all-important 7.0 handle.
The US dollar upturn added new pain to the GBP, prompting a break below 1.16, marking new lows at 1.15.
Our attentions turn now to US non-farm payroll data where we anticipate another strong month of labour market growth. A read in line with expectations will all but guarantee a 75-point hike later this month and could see the dollar stretch its legs leading into the weekly close.
- NZD/USD: 0.6000 - 0.6150 ▼
- NZD/EUR: 0.6050 - 0.6150 ▲
- GBP/NZD: 1.8880 - 1.9120 ▲
- NZD/AUD: 0.8920 - 0.9020 ▼
- NZD/CAD: 0.7950 - 0.8050 ▼