NZD tests new 2023 low amid wild bond market price action
Daily Currency Update
Despite the absence of headline newsflow and major macroeconomic data releases, price action across financial markets was choppy through trade on Monday. Bond yields fluctuated wildly, with US 10-year yields tracking within an 18-basis point range overnight, clear evidence of the uncertainty plaguing investors.US rates pushed above 5% for the first time since the Global financial crisis, dragging the USD and DXY index upward before quickly backtracking back toward 4.83%. The swift reversal put pressure on the USD and allowed the NZD to bounce off fresh year-to-date lows at US$0.5808, pushing back above US$0.5850 and marking intraday highs at US$0.5855.
Despite pushing back against the USD, the NZD remains under pressure as last week’s softer-than-expected inflation read weighed on investors’ expectations for RBNZ's monetary policy. The NZD has given up ground against key counterparts through the last week and is lower again against the GBP, EUR, and AUD.
Our attention turns now to UK, European and US PMI data, with commentary from RBA Governor Bullock ahead of tomorrow’s Australian CPI inflation update driving antipodean direction.
Key Movers
Price action across currency markets reflected the volatility in bond yields on Monday with the USD surging on the heels of a bounce in treasury rates before giving up gains and closing lower on the day as yields retreated and risk sentiment improved. At one point the DXY index was up 0.2% after 10-year bond rates punched above 5%, the first foray above this threshold since 2007.The upswing was short-lived and yields quickly retreated allowing the euro and GBP to push higher, closing nearly three-quarters of a per cent higher on the day with the EUR/USD edging toward 1.07 and Sterling punching above 1.2250. The yen proved remarkably resilient, despite the chaos enveloping bond markets, trading within a narrow range. The USD briefly traded above 150 before selling pressure prompted a move back toward 149.50.
Markets appear reluctant to extend beyond 150 for fear of intervention, yet with bond yields elevated, are unable to price a significant downward correction in USD/JPY. Price action has stalled across this paring and until we see a shift in monetary policy from the Fed and/or Bank of Japan we expect USD/JPY will continue to track between 147 and 150.
Our attention turns now to UK labour market data ahead of UK, European and US PMI numbers.
Expected Ranges
- NZD/USD: 0.5800 - 0.5900 ▲
- NZD/EUR: 0.5450 - 0.5550 ▼
- GBP/NZD: 2.0800 - 2.1100 ▲
- NZD/AUD: 0.9180 - 0.9280 ▼
- NZD/CAD: 0.7950 - 0.8050 ▲