NZD on the slide as US yields rise

Daily Currency Update

The New Zealand dollar underperformed through trade on Monday, sliding back below US$0.62, as global rates rallied and US treasury yields dragged the US dollar higher. Fading concern for the US banking sector helped fuel gains across two and ten-year rates, extending Friday’s chunky moves as markets all but fully priced in a 25-point rate hike next month.

Earning’s data for key US banks, Charles Schwabb, M&T bank and NY Bank all reported in line with or ahead of market expectations helping alleviate concerns the US banking crisis will act as a handbrake on the economy. With banks reporting strong returns, expectations the Fed will look to loosen monetary policy through H2 have begun to fade, weighing on the NZD upside and capping gains.

The NZD is now trading back below US$0.6180, having marked intraday lows at US$0.6165, while also slipping below £0.50 and giving up AU$0.9250.

With the domestic economic outlook clouded and calls for the RBNZ to ease back on tightening conditions further, amid fears it has moved too hard too fast, the NZD could well face sustained near and medium-term pressures when valued against key major counterparts.

Domestic business and consumer confidence remain near record lows, while the housing market continues to soften and cost of living pressures remain stubbornly sticky. With the NZ economy firmly entrenched in a recession, the RBNZ’s ability to manage near-term inflation pressures and long-run growth expectations will prove pivotal in governing NZ's direction through 2023.