NZD collapse continues as risk appetite evaporates

Daily Currency Update

The New Zealand dollar plunged through trade on Monday as market appetite for risk evaporates amid elevated volatility across global rates and currency markets. Having come under pressure leading into last weeks close the NZD extended its downturn, slipping below $US0.57 to mark fresh lows at $US0.5630, a staggering 3.5% below Friday’s open. Price action across major currencies exploded following the release of the UK mini budget, wherein the new Chancellor of the Exchequer announced a free spending fiscal plan, driven by deep tax cuts. With the Bank of England fighting to control inflation the introduction of an uber aggressive fiscal stimulus program is expected to counter policy makers efforts and add even greater inflationary pressures. In response markets have rushed to price an astounding 170-point rate adjustment leading into the November Policy Meeting while lifting expectations for the peak underlying cash rate to 6%. The shift in expectations for BoE policy comes on the heels of a raft of aggressive central bank policy updates. Central Banks are actively deploying bellicose rate adjustments in the hope of tackling inflation. This shift in global monetary policy has helped drive demand for haven assets as analyst and investors prepare for a deeper and long run global recession. Sustained interest rate hikes are expected to crush the post Covid global economic recovery opening the door to sustained NZD weakness. Having broken key supports the NZD is increasingly vulnerable to further downward correction.