NZD unable to sustain upturn as markets continue to balance expectations
Friday 10 February, 2023
Daily Currency UpdateIn the absence of any notable market data and headline news the NZD edged upward through trade on Thursday, eyeing a break above US$0.64. The fallout from last Friday’s blockbuster US services data and non-farm payrolls print continues to reverberate across financial markets as analysts and investors look to rebalance positions and expectations. More commentary from key Fed officials suggest policy makers are committed to maintaining the current program of monetary policy tightening, driving up near term yields. We anticipate the Fed will issue at least two more rate hikes and possibly entertain a third as it works to control inflation pressures. Despite a rise in near term yields the USD was broadly weaker, allowing the NZD to climb through US$0.6350 to mark intraday highs just south of US$0.6390. Having appeared poised to extend back through US$0.64 the NZD then reversed course giving up gains through the latter stages of the overnight session and drifting back toward US$0.6320. With little net change at the end of this last 24 hour cycle, our attentions turn to mid-level manufacturing and consumer spending data as possible catalysts sparking a break in direction.
Key MoversThere has been little net movement across major currencies through the last 24 hours as investors continue to feel their way through the shockwaves created by last week's blockbuster US services data and payrolls print. US near term yields rose amid growing bets the Fed will continue to push rates higher as it looks to tackle inflation. With two-year rates rising and 10 years rates remaining largely flat the US yield curve reached its most inverted level in over 40 years. With the yield curve so aggressively inverted it is now a matter of when not if the US economy will tip into recession. While pricing in two to three more rates hikes in this tightening cycle the market is already preparing for a correction in monetary policy pricing through the back end of 2023 and early 2024. This expectation should continue to weigh on the USD, capping gains in this current environment. The euro remains range bound, trading between 1.0720 and 1.0790, while the GBP is stuck between 1.2075 and 1.2175. With little of note on the macroeconomic docket to close the week we imagine investors will continue tweaking positions as they try to balance near term uncertainty with long-term expectations.
- NZD/USD: 0.6280 - 0.6420 ▲
- NZD/EUR: 0.5850 - 0.5930 ▲
- GBP/NZD: 1.8980 - 1.9280 ▲
- NZD/AUD: 0.9080 - 0.9150 ▲
- NZD/CAD: 0.8450 - 0.8550 ▲