NZD finds short reprieve, but forecasts point to further depreciation ahead

Daily Currency Update

After a tumultuous start to the week price action across currency markets has stabilised and the NZD outperformed most major counterparts amid a reprieve from elevated risk aversion. Having tracked toward fresh lows below US$0.5540 the NZD recovered through the early part of the overnight session marking highs just short of US$.5660 before shifting lower again in the lead up to this morning’s open. An improvement in the risk narrative help the NZD bounce off cycle lows as the Bank of England announced an extension in its emergency gilt buying program. The BoE will expand the program to include inflation linked gilts in a bid to control “dysfunction in this market”. Price action across gilts stabilised yet investors remain wary. There remains a great deal of uncertainty with the BoE’s emergency backstop set to end on Friday we anticipate expansive price action through the coming days.
Our attention today remains on developments in the UK while REINZ data will provide an update on the state of the domestic housing market. We anticipate ongoing weakness across the housing market with this month’s data set pointing toward a gloomy near-term outlook. Offshore UK GDP, Euro area industrial production, and US PPI data headline today’s docket ahead of tomorrow’s all important US CPI inflation update. Having marked a series of lower lows through the last 2 weeks we are now eyeing a break toward 0.54 as the next critical marker of support.