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NZD recovery falters in face of late risk-off surge

Friday 21 January, 2022

Daily Currency Update

The New Zealand dollar edged lower through trade on Thursday, unable to consolidate a move above 0.68 US cents. The NZD struggled through the domestic session slipping off 0.6790 to test 0.6750 before finding support through the afternoon. A pullback in global rates and broad improvement in market demand for risk then allowed the NZD to recoup the day's early losses, marking intraday highs at 0.6805 overnight. The upswing was however short-lived as sentiment soured into the daily close and a late sell-off across risk assets forced the currency back toward the bottom of the daily range. Markets continue to wrestle with rising bond yields and growing worries surrounding China’s Omicron outbreak. The ebb and flow of risk demand will continue to plague the NZD prompting choppiness into the weekly close. Sustained risk aversion could see the NZD test supports at 0.6730 while a recovery in demand for risk assets could support another run on 0.68 US cents.

Key Movers

The US dollar index advanced on Thursday thanks to a late correction in market appetite for risk. Having relinquished gains early, the DXY slipped below 95.50 as a moderation in global rates and improved demand for equities helped propel a recovery lead by the NZD and AUD. The downturn was however short-lived as sentiment appeared to sour into the close and another late sell-off helped push the DXY toward intraday highs at 95.84. The euro has slipped below 1.1350 and appears set to test a break below 1.13. Commentary from ECB president Christine Lagarde suggests the gap between Fed and ECB policy will widen through the near term. Lagarde was careful to point out the ECB will not act as quickly or as ruthlessly as the Fed given a weaker base of underlying inflation and expectation prices will stabilise moving into the end of the year. With the yield advantage expected to further favour the USD, the single currency will likely come under sustained pressure through the near term as expectations for Fed policy become ever more aggressive. With little of note on today’s ticket, our attentions remain with the broader risk trend and global rate performance in guiding direction into the weekly close.

Expected Ranges

  • NZD/USD: 0.6730 - 0.6820 ▼
  • NZD/EUR: 0.5950 - 0.6020 ▲
  • GBP/NZD: 1.9980 - 2.0220 ▲
  • NZD/AUD: 0.9320 - 0.9420 ▼
  • NZD/CAD: 0.8400 - 0.8500 ▼