NZD breaks key supports as China economic worries elevate
Written by
Daily Currency Update
The New Zealand dollar underperformed through trade on Monday, sliding below US$0.60 amid China worries and a stronger US dollar. Market reaction to Joe Biden’s withdrawal from the 2024 Presidential Election race was largely muted as pundits and markets appear confident in continuing to price a Trump victory come November.Instead, markets looked to China’s 3rd Plenum, a major policy meeting supposed to set out an agenda for growth and prosperity through the next 5 years. Investors were left wanting as officials failed to offer any new policy platforms to correct the slide in the property market and rebuild the economy. With concerns China’s economy will fail to recapture historical growth levels, demand for commodities slipped and the NZD broke below US$0.60, marking lows at US$0.5980, before finding support.
With other majors hanging within a tight handle against the USD, the NZD is lower across the board, giving up ground to the euro and GBP, while notably sliding significantly against the yen (the day's top performer). Momentum has shifted and after eyeing a break above US$0.62 in early June elevated risk aversion, China worries and Domestic rate cut expectations have combined to drive a broad NZD correction.
The question now is, are we near the bottom or can we expect a deeper sell-off? Our attentions this week sit with European and US service and manufacturing PMI data and the Bank of Canada policy meeting as key markers for direction.
Key Movers
Market reaction to Joe Biden’s withdrawal from the 2024 Presidential Election race was largely muted through trade on Monday and most majors traded within a narrow trading handle. With leading Democrats calling for Biden’s withdrawal growing through the last 3 weeks, it seems markets were prepared for the inevitable and pricing for a Trump victory in November was little changed.US treasury yields rose amid elevated risk aversion while the euro and GBP edged marginally lower on the day. The Japanese yen was the day’s big winner, buoyed by the risk-off mood and growing calls for the Bank of Japan to lift rates next week. Weakness in Japanese consumer spending will likely weigh on policymakers and a Bloomberg report showed officials are divided on whether a rate hike is appropriate.
With markets expecting a shift in policy, we expect plenty of volatility this week, particularly against key crosses like the AUD and NZD.
Expected Ranges
- NZD/USD: 0.5950 - 0.6030 ▼
- NZD/EUR: 0.5450 - 0.5550 ▼
- GBP/NZD: 2.1450 - 2.1750 ▲
- NZD/AUD: 0.8950 - 0.9050 ▲
- NZD/CAD: 0.8200 - 0.8300 ▼