NZD finds support as USD retraces gains
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Daily Currency Update
The New Zealand dollar found support through trade on Tuesday amid softer US treasury yields and a weaker USD. The NZIER’s quarterly Survey of Business Opinion and conditions showed a further decline in price pressures, with respondents expected to increase prices in line with current CPI expectations. While inflation indicators continue to track toward the middle of the RBNZ target band, activity markers remain soft and labour market conditions continue to deteriorate, marking their lowest level since the end of the GFC. NZ yields dipped and the NZD tested US$0.6050 during the domestic session, before finding support and rallying back toward US$0.6080. Comments from Fed chair Jerome Powell drove US treasury yields lower and forced the USD to retrace gains won through trade on Monday, allowing the NZD to find momentum through the overnight session.With no domestic data on hand today, our attentions remain affixed to US non-farm payroll numbers as a critical marker in guiding Fed policy. The US labour market continues to show remarkable resilience and is affording the Fed time to consider policy moves. A softening in employment conditions may act as a catalyst to bring forward rate cuts and propel the NZD back above US$0.61.
Key Movers
Price action across majors has been largely subdued to start the week, with the USD retracing gains won on Monday following comments from Fed Chair Jerome Powell. Powell suggested inflation was moving toward the Fed targets and “quite a bit of progress has been made”. While he declined to give guidance on the timing of rate cuts, the market is preparing for an easing in financial conditions before November. Powell also noted the unsustainable trajectory of US national debt, noting it is a top issue for politicians. The comments forced US yields lower as the dollar gave up ground against most counterparts. While the euro is little changed, the GBP edged higher, up .3% ahead of the UK Election on Thursday. With Labour expected to win and stabilise the economy, markets are pricing for less domestic volatility in the UK, potentially, if coupled with a sustained decline in inflation pressures, opening the door for the GBP to strengthen. The CAD also outperformed up near half a percent. There is no obvious catalyst for the upturn outside a rally in domestic yields and it seems markets are merely correcting earlier weakness.Our attentions this week remain with the UK election and US non-farm payroll numbers as the two big ticket items driving direction.
Expected Ranges
- NZD/USD: 0.6020 - 0.6120 ▲
- NZD/EUR: 0.5600 - 0.5700 ▲
- GBP/NZD: 2.0750 - 2.1050 ▲
- NZD/AUD: 0.9080 - 0.9180 ▲
- NZD/CAD: 0.8280 - 0.8350 ▼