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NZD marks two-year low as global rates soar

Wednesday 15 June, 2022

Daily Currency Update

The New Zealand dollar plumbed fresh lows through trade on Tuesday, plunging through supports to test a break below 0.62 US cents. Having tracked sideways through the domestic session the NZD dived lower overnight as markets continue to adjust US rate expectations and seek haven in the US dollar. Reports the Federal Reserve is likely to raise rates by 75 basis points at its meeting later today in a bid to control troubling and persistently elevated inflation numbers saw global rates surge dragging the USD higher and commodity currencies lower. Despite a brief reprieve through the latter half of May markets have adopted a definitive risk-off move as the realisation of elevated inflation pressures and uber-aggressive central bank realignment will likely result in a global recession sink in. Having touched two-year lows at US$0.6197 the NZD has found some support and moved back above critical supports at US$0.6217 to open at US$0.6220 yet remains increasingly vulnerable leading into tonight’s critical FOMC policy update. Anything short of a 75-basis point hike would surprise markets and may offer the NZD some reprieve. That said the Fed has no choice but to be super aggressive in its attempt to control inflation and affirmation of market expectations could hold the USD to consolidate recent gains. We expect heightened volatility through the overnight session.

Key Movers

The US dollar outperformed again through trade on Tuesday as global Rates continue to soar and markets price in a super aggressive Fed policy action. Reports the Fed will look to raise rates beyond previous expectations issuing a 75 basis point hike at its June policy meeting tonight forced investors to readjust expectations and price in 150 basis point hike through the next two meetings. The underlying fed fund rate sits at just 1% and with inflation extending above 8.5% last week markets have come to the sudden realisation the Fed has no choice but to super charge monetary policy normalisation. With rates expected to peak at 4% in Q2 next year the recent re-alignment in market rates pricing represents a remarkable shift in expectations. Just last month signs growth across the US economy may be slowing had prompted analyst to suggest the Fed may pause the tightening cycle in September to re-assess the impact of recent rate hikes. The Dollar Index has surged since Friday’s inflation print and today topped 105.4 a two-year high. The USD remains elevated against the yen while the GBP was the days worst performer. The pound slipped below US$1.20 as a lackluster labour market print added to signals the UK is headed for recession. With messaging from the BoE already mixed expectations the gap between Fed and MPC monetary policy widened as the UK rates failed to keep pace with US treasuries. Having touched lows at US$1.1925 all eyes now turn to the Fed and FOMC policy update for direction through the rest of the week.

Expected Ranges

  • NZD/USD: 0.6180 - 0.6320 ▼
  • NZD/EUR: 0.5930 - 0.6030 ▼
  • GBP/NZD: 1.9080 - 1.9520 ▼
  • NZD/AUD: 0.8980 - 0.9080 ▲
  • NZD/CAD: 0.7980 - 0.8100 ▼