NZD unable to capitalise on domestic gains, testing another break below 0.70
Wednesday 7 July, 2021
Daily Currency UpdateNZD - New Zealand DollarThe New Zealand dollar has enjoyed an eventful 24 hours, testing 0.71 US cents before tumbling back below 0.70. The NZD advanced through the domestic session, buoyed by a hawkish RBA policy statement and illuminating Quarterly Statement of Business Opinion (QSBO). The QSBO highlighted just how fast the economy has recovered from the height of the pandemic. Record labour shortages and a huge uptick in input costs are driving retailers to increase prices, with most expecting they will need to apply additional increases through the months ahead. Upward inflation concerns prompted investors to bring forward rate hike expectations, with the first-rate adjustment now likely to be in Q4 this year. Having touched intraday highs at 0.7106 the NZD then suffered a steep overnight sell off as a risk-off mood swept across financial markets, driving losses across equities and commodity currencies. US investors seemingly returned from their long weekend in a cautious mood. There does not appear to be any one catalyst triggering the risk-off shift, rather a combination of factors. Fears the aggressive appreciation across equities is overdone, soft US domestic data, uncertainty across oil markets and the relentless spread of the Delta variant all appear to have contributed to a drop in risk appetite. The NZD plunged through 0.7050 to touch intraday lows at 0.6990 before edging marginally higher into this morning’s open.
Key MoversMarkets adopted a cautious tone overnight, driving a depreciation in risk demand and prompting gains for both the USD and JPY. Cashing in on their safe-haven status, the USD and Yen advanced against major counterparts, while the GBP and EUR failed to keep pace. The EUR broke below key supports at 1.1825 touching intraday lows at 1.1810 while the GBP slipped below 1.38 to touch 1.3774. The CAD however was the day’s big loser, giving up almost one and a half cents as turmoil across oil markets compounded the commodity currency sell off. With no obvious catalyst triggering the decline in risk appetite, our attentions remain affixed to any signal suggesting a broader shift in the reflation narrative and an ongoing risk reprice.
- NZD/USD: 0.6970 - 0.7100 ▼
- NZD/EUR: 0.5890 - 0.5990 ▼
- GBP/NZD: 1.9480 - 1.9850 ▲
- NZD/AUD: 0.9320 - 0.9390 ▼
- NZD/CAD: 0.8680 - 0.8820 ▲