NZD unable to maintain rebound as markets look to haven assets
Friday 10 December, 2021
Daily Currency UpdateThe New Zealand dollar recovery faltered through trade on Thursday, slipping back below 0.68 US cents as the recent resurgence in risk demand faded. Lingering fears surrounding the omicron variant and ongoing uncertainty within the Chinese property market forced investors toward haven assets, while markets took stock ahead of next weeks key central bank policy announcements. Analysts largely ignored partial indicators that suggest the decline in GDP through the 3rd quarter may not be as aggressive as first feared. The RBNZ has forecast a 7% contraction in growth through Q3, yet yesterday's key data printed stronger than expected and could see the depreciation contained below 5%. The data did little to help the NZD, with the currency remaining increasingly vulnerable to the broader risk narrative and Fed policy expectations.
Our attentions today turn to US CPI data ahead of next week's Fed policy meeting. We expect the NZD will remain under pressure leading into both risk events, with supports at 0.67 crucial in governing medium-term direction.
Key MoversPrice action across major currencies was largely contained through trade on Thursday, with the days big movers the Norwegian kroner and Chinese yuan. The Peoples Bank of China stepped in to dampen recent CNY gains after the currency marked a fresh three-and-half-year high when valued against the USD. Policy makers announced an increase in the Foreign Currency Reserve Requirement, prompting a half percent correction and the largest single day decline since June. The USD found support as investors looked to pare recent risk on gains. The dollar index jumped 0.4%, its largest daily appreciation in over a fortnight, while the euro gave up 0.5% and sterling’s struggles continued.
Our attentions turn now to an all-important US CPI print. Headline inflation is expected to hit 40-year highs, all but guaranteeing the Fed will need to accelerate the tapering of bond purchases and bring forward its path to Monetary policy normalisation. We expect markets will be wary of extending positions ahead of next weeks Fed and ECB policy updates. A further divergence in outlook could see the common currency test 1.12 and drive broader USD gains.
- NZD/USD: 0.6980 - 0.6830 ▼
- NZD/EUR: 0.5980 - 0.6050 ▲
- GBP/NZD: 1.9330 - 1.9530 ▼
- NZD/AUD: 0.9450 - 0.9530 ▲
- NZD/CAD: 0.8580 - 0.8720 ▲