NZD outperforms, consolidating weekly gains and marking two month high
Friday 12 August, 2022
Daily Currency UpdateThe New Zealand dollar outperformed through trade on Thursday, consolidating Wednesday’s post US inflation uptick. A sustained improvement in the underlying risk narrative and a surge across key equity indices helped propel the NZD to its highest point in over 60 days. Jumping through 0.6450, the NZD touched intraday highs at 0.6460 before edging lower into this morning’s open where it now buys 0.6430 US cents. While enjoying renewed upside against the USD, the NZD has outperformed most major counterparts through the last 48 hours, touching 0.6240 against the euro, 0.5280 against the GBP and climbing back above 0.9050 against the AUD.
Our attentions turn to NZ manufacturing PMI data for June, with expectations for a print below the line of growth and/or contraction. Outside of a huge surprise, we expect little impact and with second tier US consumer sentiment data the only other item of note on the macroeconomic calendar, our focus remains with the evolving risk narrative and treasury rate performance leading into the weekly close. While we still see good selling opportunities at these elevated levels, the shift in US rate expectations and looming recession has opened the door to a sustained NZD recovery and a higher low moving into Q4.
Key MoversPrice action calmed through trade on Thursday as most majors maintained a larger narrow trading handle, with investors continuing to digest Wednesday's CPI surprise and its implications for Fed policy. The immediate Fed response suggests they are committed to the current program of monetary policy adjustment, affirming reports inflation, particularly core inflation, remains far too high. San Francisco Fed President Mary Daly told the Financial Times “We are not near done with tightening yet”. Despite the hawkish sentiment, Daly did concede her baseline was for an easing in the pace of rate hikes, reducing expectations for a 75-point lift in September. Since the inflation print, markets have pared back hopes for a 75-basis point hike, pricing just a 40% likelihood, down from over 80% prior to the CPI surprise. With markets amending rate expectations, the USD consolidated Wednesday's 1% decline, giving up a further 0.1% against a basket of major counterparts, as the euro eyed a break above 1.0350 and the sterling held firm above 1.22. With little of note on today’s ticket our attentions remain with the broader risk narrative and volatility across global rates as key markers driving direction into the weekly close.
- NZD/USD: 0.6230 - 0.6480 ▲
- NZD/EUR: 0.6180 - 0.6280 ▲
- GBP/NZD: 1.8820 - 1.9080 ▼
- NZD/AUD: 0.9020 - 0.9080 ▲
- NZD/CAD: 0.8150 - 0.8250 ▲