NZD gives up 2 month highs amid shift in risk sentiment
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Daily Currency Update
The New Zealand dollar tracked lower through trade on Wednesday amid an uptick in global bond yields and elevated risk aversion. Equities and risk assets retreated as bond yields surged and the NZD was forced to move off two-month highs near US$0.6170 following reports the People's Bank of China had set a lower daily Fix for the CNY. The yuan reached its weakest level for 2024 as policymakers allowed the currency to depreciate in the face of extended US dollar resilience. With the yuan under pressure, the NZD retreated toward intraday and overnight lows at US$0.6110.Our attention now turns to the domestic budget, to closely monitor for treasury projections. The RBNZ has noted the fiscal backdrop could pose a risk to inflation and a budget surprise may disrupt expectations as to the timing and trajectory of monetary policy leading into H2.
Key Movers
The US dollar advanced against all G10 counterparts through trade on Wednesday buoyed by higher US treasury yields and a shift in risk sentiment. The DXY index closed up 0.5% for the day as the antipodean and Scandinavian currencies led losses while the Japanese yen and Swiss franc outperformed amid risk-off demand. Another soft US treasury auction added further fuel to treasury yield gains, while hotter-than-expected German CPI data helped to drive EU yields upward, squeezing equities and risk assets as markets prepare for an elongated period of elevated interest rates. German CPI rose 2.8% year on year up four-tenths of a percent on last month and above median estimates. With inflation pressures showing little signs of stalling our focus turns to broader eurozone inflation numbers ahead of the ECB policy meeting next week. Markets have largely priced in a 25-basis point rate cut, however, the hotter-than-expected inflation read could push back expectations for future rate adjustment and force investors to reconsider the timing and trajectory of monetary policy change. Our attention now turns to today's Eurozone employment data and US GDP numbers.Expected Ranges
- NZD/USD: 0.6080 - 0.6170 ▼
- NZD/EUR: 0.5600 - 0.5700 ▲
- GBP/NZD: 2.0600 - 2.0900 ▼
- NZD/AUD: 0.9180 - 0.9280 ▲
- NZD/CAD: 0.8350 - 0.8420 ▲