Home Daily Commentaries New Zealand dollar unable to hold on to gains above 57 US cents

New Zealand dollar unable to hold on to gains above 57 US cents

Wednesday 19 October, 2022

Daily Currency Update

The New Zealand dollar is stronger this morning when valued against the Greenback. The Kiwi dollar rose over a cent to almost as high as 0.5720 overnight, with further support from higher risk appetite but it has since fallen back below 0.57. On the data front, yesterday domestic Consumer Price Index showed a massive increase in Q3 of 2.2%, well above market expectations of 1.5%, seeing the annual increase nudge down only slightly to 7.2% y/y. Over half of the forecast error can be traced to a 20% surge in airline fares, but there were also signs of sticky underlying inflationary pressure. All key annual core inflation measures lifted and ranged between 5.0% to 6.9%, including the Reserve bank of New Zealand (RBNZ) core sectoral factor model estimate, which rose to a record high of 5.4% y/y in data that dates back thirty years. Given the RBNZ’s short-term focus on bringing inflation down economists are now calling for a 75bps hike in November. Looking ahead for the rest of this week and on Friday we will see the release of the both NZ Trade Balance and monthly Credit Card Spending figures.

Key Movers

Overnight British Prime Minister Liz Truss has vowed to lead her party to the next general election but there is speculation she could be moved on long before she gets that chance. Ms. Truss has backtracked on nearly all tax cuts pitched in her disastrous mini-budget. A U-turn she left to her new chancellor Jeremy Hunt to announce. Ms. Truss took over from Boris Johnson just last month after beating Rishi Sunak to the post via an internal party ballot. UK Prime Minister Liz Truss has apologised for her "mistakes" and pledged to lead her Conservative Party to the next election as she fights for her job after a bonfire of her tax-cutting plans. In another cruel blow, one of her ministers has threatened to quit her Cabinet live on air. Armed Forces Minister James Heappey vowed to resign if Ms. Truss fails to meet her commitment to raise defence spending to three percent of GDP by 2030. US second-tier data overnight was mixed. US industrial production rose 0.4% m/m in September, stronger than expected, and seeing manufacturing capacity utilisation rise to 80%, matching the highest level in nearly two decades. High utilisation is usually associated with stronger inflationary pressure. The NAHB index of homebuilder sentiment fell for the tenth consecutive month, to 38, further signs that higher mortgage rates are a massive brake on housing market activity. The index is a good leading indicator of new home sales, which are apt to plunge over the coming months. The current market pricing suggests a nearly 100% chance for another supersized 75 bps Fed rate hike in November. This in turn continues to act as a tailwind for the US bond yields and the greenback.

Expected Ranges

  • NZD/USD: 0.5600 - 0.5800 ▼
  • NZD/EUR: 0.5650 - 0.5850 ▼
  • GBP/NZD: 1.9700 - 1.9900 ▼
  • NZD/AUD: 1.0950 - 1.1150 ▲
  • NZD/CAD: 0.7700 - 0.7900 ▼