Home Daily Commentaries NZD gives up gains under weight of ongoing inflation woes

NZD gives up gains under weight of ongoing inflation woes

Daily Currency Update

After outperforming through trade on Wednesday the NZD gave up gains amid a backdrop of higher global rates and stronger US labour market indicators on Thursday. Having touched highs north of US$0.6260 the NZD fell steadily through the domestic and overnight sessions sliding back toward US$0.62. Elevated European inflation pressures and higher-than-expected US labour unit costs lifted rate expectations and pushed global rates toward fresh highs. With the USD stronger against all G10 currencies the NZD struggled to gather any real momentum or support.
Amid a backdrop of higher global rate expectations led by the US Federal Reserve, the NZD will likely remain under near-term pressure. Having failed to consolidate the break above US$0.6250 the NZD is now poised to slide back below US$0.62. We expect price action through the domestic session to remain relatively subdued, tracking between US$0.6180 and US$0.6250 ahead of tonight's all-important US ISM services update. Services activity proved a key trigger point through February and an outsized print could well spark another round of elevated price action.

Key Movers

The US dollar continues to find support amid a backdrop of higher global rates. US 10-year treasuries climbed above 4% touching highs just shy of 4.1%. US data sets again pointed to a robust labour markets and sticky price pressures as jobless claims remain a low levels and unit labour costs continue to rise. While leading indicators suggest unemployment will begin to rise through the months ahead unemployment claims continue to sit below expectations. This coupled with an upward revision in labour costs and markets has been forced to fuel the narrative of the higher cost of living pressures. With inflation stubbornly resistant to monetary policy markets continue to adjust expectations for future rate hikes. To this point Euro area CPI printed above expectations, on Thursday writing in an 8.5% increase year on year. The elevated updated all but guarantees the European Central Bank will look to lift rates by 50 basis points later this much and we now anticipate they will maintain a similar pace of adjustment in a push toward a peak deposit rate of 4%. With rate expectations lifted German and European bond yields rose and the euro slipped back below US$1.06, unable to keep pace with the USD. The dollar advanced across the board with the GBP back below US$1.20 shifting nearer US$1.1950 while the yen allowed the USD to test a break above ¥137 before settling nearer ¥136.6.
Our attentions turn now to US ISM services activity. Price action has shifted dramatically following the last two ISM updates and another print outside expectations will likely drive volatility into the weekly close.

Expected Ranges

  • NZD/USD: 0.6150 - 0.6290 ▼
  • NZD/EUR: 0.5820 - 0.5920 ▲
  • GBP/NZD: 1.9080 - 1.9320 ▼
  • NZD/AUD: 0.9200 - 0.9280 ▼
  • NZD/CAD: 0.8390 - 0.8520 ▼