Kiwi retreats in face of negative China sentiment
Daily Currency Update
The New Zealand dollar was among the worst performers through trade on Tuesday giving up US$0.62 amid softer China sentiment and a weaker yuan. Monday's risk-off mood continued to envelop investors, prompting a sell-off across equity markets and risk assets. Negative risk sentiment stems from sustained concerns surrounding China's growth outlook. While Chinese Banks reduced their 1 and 5-year loan rates by 10 basis points, passing on last week's People's Bank of China rate cut, markets were hoping for more decisive stimulatory action. The yuan moved back above ¥7.18, challenging last week's highs and creating headwinds for the NZD and AUD. Having slipped below US$0.62 the NZD touched intraday lows at US$0.6140 before finding support. The NZD opens this morning buying US$0.6170 as attentions turn to UK CPI data and Commentary from Fed chair Jerome Powell as markers for direction through trade on Wednesday.Key Movers
The risk-off session and lower global rates helped elevate the USD and Japanese yen through trade on Tuesday with the latter enjoying strong gains against the NZD and AUD while pushing back against the USD. The yen forced the USD back below ¥142 toward intraday lows at ¥141.20. While underperforming against the yen the USD continued recovering last week's losses, advancing against both the euro and the pound. Stronger than anticipated US housing starts helped elevate the USD while dovish commentary from European Central Bank policy makers prompted a correction in European yields. Having given up US$1.0950 the euro slipped below US$1.09 marking intraday lows at US$1.0895 before finding support. The GBP gave up US$1.28 and US$1.2750, sliding toward intraday lows at US$1.2720.Our attentions turn now to UK CPI data. We expect headline CPI to remain elevated near 8.4-8.5% with core CPI steady at 6.8%. Elevated CPI should further elevate UK gilt yields and add near-term support for the GBP, however, extended inflation and rising interest rate expectations will eventually weigh heavily on the growth outlook and GBP could turn negative as market focus turns to recession.
Expected Ranges
- NZD/USD: 0.6120 - 0.6240 ▼
- NZD/EUR: 0.5580 - 0.5680 ▼
- GBP/NZD: 2.0580 - 2.0820 ▲
- NZD/AUD: 0.9050 - 0.9150 ▲
- NZD/CAD: 0.8080 - 0.8220 ▼