New Zealand dollar range bound as European tensions ease
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Daily Currency Update
The New Zealand dollar underperformed on Monday when valued in the context of last week's gains, slipping back toward intraday lows just north of US$0.61, before settling near US$0.6130 overnight. Markets largely ignored another poor domestic macroeconomic print that showed a significant fall in performance service. The Performance Service Index plunged to its lowest level since records began in 2007 (COVID-19 lockdown excluded).Commentary from key business groups suggests conditions are worse than those seen during the GFC, offering further insight into the challenges facing the RBNZ. With domestic conditions deteriorating and inflation stubbornly high, the NZD could face steep downside pressure when the RBNZ begin cutting rates. That said, with the RBNZ expected to leave rates on hold and a rate hike still not completely off the table, the NZD should maintain yield support through the near term.
Our attention today turns to domestic consumer confidence data for Q2 and the RBA policy update. With the NZD outpacing the AUD through the last 4 weeks, any widening in the monetary policy gap could allow the NZD a consolidated break above AU$0.93.
Key Movers
Price action across currency markets cooled on Monday after last week’s European turmoil. French equities rebounded and French German bond spreads narrowed, allowing the euro to consolidate above 1.07, marking session highs at 1.0735. Marine Le Penn’s attempts to appeal to a wider voting cohort suggested she would seek to work with President Macron, suggesting her party's proposal would ease financial market concerns.While the euro rebounded, the USD advanced against the yen as US treasury yields continued their meteoric rise, extending beyond 157 to mark highs at 157.70. Higher yields worked against the yen, while the Bank of Japan’s (BoJ) unwillingness to commit to details surrounding bond-buying activity added more downward pressure on the already embattled currency.
BoJ officials refused to be drawn on reducing bond purchases, raising the likelihood of further intervention as the yen will likely face more targeted selling, at least until the next BoJ policy meeting. Our attention today turns to US retail sales, where we expect a modest activity uptick through May after the April slowdown.
Expected Ranges
- NZD/USD: 0.6080 - 0.6215 ▼
- NZD/EUR: 0.5650 - 0.5750 ▼
- GBP/NZD: 2.0620 - 2.0820 ▲
- NZD/AUD: 0.9220 - 0.9320 ▼
- NZD/CAD: 0.8350 - 0.8450 ▼