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NZD tests 0.68 as risk sentiment improves

Friday 17 December, 2021

Daily Currency Update

The New Zealand dollar advanced through trade on Thursday, buoyed by a broad uptick in risk appetite following a further hawkish shift in central bank speak. The USD dollar has weakened in the wake of the Fed’s policy announcement on Wednesday, despite a largely bullish assessment of domestic economic conditions and an accelerated timetable of monetary policy amendment. In normal circumstances, we would have expected the Fed’s hawkish policy shift to fuel renewed demand for the USD. Instead, it seems the professed policy changes were simply in line with market expectations and with the unknown leading into the risk event now markets are again free to let loose the shackles and pursue risk assets. The NZD jumped back above 0.68 US cents, touching intraday highs at 0.6830 before a correction leading into this morning’s open. With little of note between now and the festive season, we expect recent volatility will ease and ranges stabilise as we move into the New Year.

Key Movers

Thursday was dominated by a slew of central bank commentary, with both the ECB and Bank of England delivering policy updates. As the US dollar continues its contraction in the wake of the Fed policy update, the ECB confirmed it would start tapering bond purchases from early next year, with a plan to end the Pandemic bond-buying program in March. The winding down of emergency relief will be coupled with an increase in its traditional QE program as policymakers attempt to wean the market off central bank supports and avoid a brutal transition. European bond rates advanced in the wake of the policy update, while the euro marked intraday highs at 1.1360 before edging back toward 1.1320/30 this morning. Not to be outdone, the Bank of England surprised analysts and investors alike, announcing a 15 basis point rate hike, raising the cash rate from 0.1% to 0.25%. With just 40% of the market pricing in any policy update, the majority of traders were forced to scramble and correct positions and adjust for further rate hikes over the coming 12-24 months. The GBP rallied sharply higher, pushing back through 1.33 to mark intraday highs at 1.3375. Having navigated this week’s risk events, we anticipate price action will ease leading into the holiday period with direction driven by fluctuations in the risk narrative, largely led by developments in the race against the Omicron COVID-19 variant.

Expected Ranges

  • NZD/USD: 0.6730 - 0.6830 ▲
  • NZD/EUR: 0.5980 - 0.6040 ▲
  • GBP/NZD: 1.9450 - 1.9680 ▲
  • NZD/AUD: 0.9420 - 0.9520 ▲
  • NZD/CAD: 0.8650 - 0.8730 ▲