NZD under pressure despite improvement in risk sentiment

Daily Currency Update

A broad improvement in risk sentiment and a recovery across equity indices did little to help correct the recent NZD downturn. While the Nasdaq and S&P 500 both rebounded through trade on Tuesday there appears no obvious catalyst for the shift in sentiment outside a bear market rally and with little headline newsflow driving the shift in sentiment we expect investors will remain cautious through the near term. The undercurrent of uncertainty meant the risk rally across equities failed to spill over into currency markets and the NZD struggled to mount any real upward momentum bouncing between US$0.6280 and US$0.6350. Commodity currencies remain under pressure as fears the conflict in Ukraine and China’s lockdown extension will weigh on the global growth outlook well into H2 this year. With the NZD seemingly set to extend the break below 0.63 US cents added pressure comes in the form of tighter monetary policy and a fear of recession. Fed officials remain aggressive in their plans for monetary policy normalisation. While Fed Chair Jerome Powell ruled out a 75-basis point hike last week several key policymakers haven’t ruled out increasing the pace of rate hikes if inflation doesn’t moderate in line with expectations.

Our attentions turn now to US CPI inflation data. With headline inflation expected to moderate and the annual rate of inflation contract to 8.1%, down from 8.5%, an outperformance could heighten calls for the Fed to move faster, pushing the NZD below supports at US$0.6280