NZD resilient as RBNZ proffers hawkish tone
Daily Currency Update
The New Zealand dollar enjoyed mixed fortunes through trade on Wednesday, buoyed by hawkish RBNZ before China fears and a risk-off mood engulfed markets. While the RBNZ opted to leave rates on hold at 5.5%, policymakers increased their expectations for the peak overnight Cash rate from 5.5% to 5.59% through June 2024. While giving no signal of when further rate hikes might be issued, the suggestion the RBNZ is not necessarily finished with its tightening cycle helped fuel demand for the NZD driving the Kiwi toward intraday highs just south of US$0.60. Having touched US$0.5990, the NZD faded through the latter half of the domestic session and overnight amid higher US yields and more negative China news. Reports Chinese authorities have requested investment funds avoid being net sellers this week amid rising concerns property market uncertainty will permeate the broader economy. News Zhongrong International Trust, one of China’s largest shadow banks, had missed several payments owing on investment products which elevated fears the crisis is spreading to the financial sector. The Yuan fell again against the USD and is now just short of the 2022 peak at 7.3280. The risk-off mood forced the NZD back toward US$0.5950.With little of note on the domestic docket outside PPI data, our attentions remain with China headlines and the broader risk narrative.
Key Movers
The US dollar was stronger again through trade on Wednesday, advancing against most counterparts on the heels of rising US treasury yields and ongoing China concerns. US 10-year treasury yields rose to 4.26%, marking the highest daily close in 15 years, affording markets confidence the Fed will be able to adopt a measured approach in returning to a more accommodative monetary policy setting. With China concerns continuing to grab headlines, risk demand faltered, forcing investors toward safe haven assets and further extending US dollar gains. The Yen remains under pressure, giving up 146 for the first time in 10 months and while the Euro struggled the GBP edged upward, jumping 0.1% on stronger-than-expected inflation data. While headline inflation fell 1% through July, core inflation printed above expectations, driven by an uptick in service costs. With inflation still well above the Bank of England’s target range, the market is pricing a further 80 points of tightening, a full hike more than this time last week. With UK yields rising, the GBP is stronger across the board extending and marking fresh 3-year highs against the AUD and NZD.Our attentions turn now to Australian labour market data and US unemployment claims for direction Thursday.
Expected Ranges
- NZD/USD: 0.5880 - 0.6020 ▼
- NZD/EUR: 0.5400 - 0.5500 ▲
- GBP/NZD: 2.1200 - 2.1600 ▲
- NZD/AUD: 0.9200 - 0.9300 ▲
- NZD/CAD: 0.7980 - 0.8100 ▲