Home Daily Commentaries NZD resilient in face of heightened risk aversion

NZD resilient in face of heightened risk aversion

Wednesday 2 March, 2022

Daily Currency Update

The New Zealand dollar proved remarkably resilient in the face of a broader risk off move overnight, tracking within a well-defined and familiar range. Russia’s war on Ukraine continues to intensify as stout Ukrainian resistance forces the Kremlin to ramp up its military forces, bombarding Ukraine’s second-largest city Kharkiv while amassing troops and supplies on the outskirts of the capital Kyiv. As Russia deploys a greater force against Ukraine, we can expect tensions will only intensify, spilling beyond strategic military targets and into civilian areas. The war has wreaked havoc across financial markets, and a distinct risk off mood enveloped investors through trade on Tuesday. Global bond rates rallied, as equities tumbled, and volatility measures tested 12-month highs. Having eyed a break above 0.68 US cents, the NZD edged lower under the weight of amplified risk aversion, slipping below 0.6750 and marking intraday lows at 0.6740. The battle between risk appetite headwinds and the uptick in commodity prices amid supply shortages continues, ensuring the NZD remains contained within a relatively narrow trading handle. Attentions remain with developments in Eastern Europe.

Key Movers

Outside European currencies, price action across majors was largely well contained through trade on Tuesday as the tug of war between risk aversion, shifting monetary policy expectations and rising commodity prices kept ranges in check. With markets overwhelmed by a risk off shift, the euro tumbled through 1.11, the first breach of this barrier in over two years and a clear signal markets expect the ramifications of war in Ukraine to reverberate across Europe. Having touched intraday lows at 1.1093 the euro found some support edging back above 1.1125 leading into the daily close. Sterling tumbled through 1.34 and 1.3350 marking intraday lows at 1.33 while the Swedish and Norwegian krone also fell, despite support from key commodities. Europe's exposure and dependence on Russian gas and oil reserves have fuelled expectations rising commodity prices will exacerbate already extreme inflation pressures, propelling the EU and UK toward recession. Attentions remain affixed to developments in Eastern Ukraine as macroeconomic data continues to take a back seat.

Expected Ranges

  • NZD/USD: 0.6670 - 0.6800 ▼
  • NZD/EUR: 0.5980 - 0.6120 ▲
  • GBP/NZD: 1.9580 - 1.9850 ▼
  • NZD/AUD: 0.9280 - 0.9350 ▼
  • NZD/CAD: 0.8550 - 0.8650 ▲