NZD steady ahead of key RBNZ and US inflation updates
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Daily Currency Update
Currency movements were relatively modest through trade on Monday, yet the NZD underperformed and edged back to US$0.6130 while tracking lower against most key crosses. With little of note on the domestic and offshore dockets markets appeared content in consolidating positions following last week's volatility and a shock French Election result.A sharp swing to the left saw the Far-Right National Rally party give up their round one lead to finish 3rd behind Macron’s centrist alliance and a coalition of left-wing parties. With no party winning enough seats to form a majority government, a period of uncertainty still hangs over France, prompting some euro weakness and US dollar strength.
Having touched intraday highs at US$0.6153, the NZD tracked lower overnight and the question now is can it extend last week's rebound back toward US$0.62? Key to the NZD upside is an extension in the US disinflation narrative and a moderation in US economic exceptionalism.
With services activity faltering last week and entering contractionary territory and non-farm payrolls falling short of market expectations, there is a growing argument for the Fed to cut rates in September weighing on yields and forcing the dollar toward the lower end of recent ranges. We are closely watching the US activity sets and inflation markers as key catalysts that could support an NZD run back toward US$0.6150-0.63.
Key Movers
Moves across majors were muted on Monday as market focus shifted toward US inflation data on Thursday. Despite a shock election result in France, the euro maintained a relatively narrow range, clawing back early losses to close just 0.1% lower on the day. With the far-right National Rally relinquishing their round one lead to finish third, fears of a seismic shift in French politics have been extinguished.While no party won enough seats to form a majority government and a period of uncertainty remains, the market's worst fears have been removed and the risk-off shift that helped support the USD through June could well taper moving through July. With the transition of control progressing smoothly in the UK and Labour expected to be more market, business and investment-friendly than the fiscally frugal conservatives, the GBP has held onto gains above 1.28.
In other news, Japanese wage inflation data on Monday showed base salaries rising. At the same time, a Bank of Japan report supported broad-based wage growth, heaping more pressure on officials to tighten policy in July. Market reaction was modest, affording the yen little support and until the Bank of Japan follows through, removes yield curve controls and tightens rates, the yen will face significant near-term headwinds.
Attention today turns to Fed Chair Jerome Powell as he addresses a Senate committee on Monetary Policy.
Expected Ranges
- NZD/USD: 0.6050 - 0.6150 ▼
- NZD/EUR: 0.5600 - 0.5700 ▼
- GBP/NZD: 2.0800 - 2.1000 ▲
- NZD/AUD: 0.9020 - 0.9120 ▼
- NZD/CAD: 0.8300 - 0.8400 ▼