FX News

New Zealand’s 2-year inflation forecast rose to 3.62% the highest since 1991 from low 3.0’s which weakened the kiwi to 0.9115 (1.0970) against the Australian Dollar (AUD) into Thursday sessions. Adding to this negativity was the news that the Reserve Bank of New Zealand Governor Adrian Orr had been re-appointed for another 5 years under strong criticism who will deliver another 50 points later this month. Some suggested no independent review had been carried out to ascertain his performance prior to another 5 years being signed off. With a recent surge in metal prices i.e., coal and iron ore- expected to improve based on China’s reopening post covid lockdowns we may see the Aussie improve towards year end.

Current Level: 0.9150 (1.0922)
Resistance: 0.9235 (1.1000)
Support: 0.9090 (1.0830)
Last Weeks Range: 0.9047-0.9211 (1.0856-1.1053)

The US Dollar (USD) strengthened across the board midweek- the New Zealand Dollar (NZD) failing to hold Tuesday’s 0.6000 and drifted back to 0.5880 this morning. Midterm US elections are driving currencies mainly at the moment while we wait for results to come through. It looks like the Republicans will take control of the House of Representatives while the margin for the Senate still remains tight. Equity markets came off around 2% overnight as economic stability waned. Meanwhile we have the upcoming US CPI in focus with predictions this may ease lower from 8.2% y/y in October. Election event risk will drive the cross into the close, tough to know how the kiwi will react.

Current Level: 0.5877
Resistance: 0.6080
Support: 0.5730
Last Weeks Range: 0.5737-0.5939

Market Overview

Key Points:

• US midterm elections are in progress with predictions the Republicans will take over the House of Representatives, meanwhile the race for the Senate is tight
• The Reserve Bank of New Zealand Monetary Policy Review this morning suggests the high inflation could have been lessened if Ore had hiked earlier
• Some analysts are suggesting the Fed may take interest rates all the way to 6.0% before starting to ease.
• Russia has ordered the withdrawal from the city of Kherson, a major victory for Ukraine which will make it harder for Russia to push west, some think this could be a game plan before the Russians destroy the Dnieper River Dam- the biggest Hydro station in Ukraine.
• The German economy is predicted to contract 0.2% in 2023
• RBA’s Bullock spoke yesterday saying further rate hikes will be required – data dependant
• China has again extended their support for struggling property developers by boosting the 2018 program to 250B Yuan
• The Swiss Franc (CHF) is the strongest currency this week while the New Zealand Dollar (NZD) has been the worst performer. Read more

Tuesday 08/11
3pm, USD, Inflation Expectations q/q
Previous: 3.07%
10:30pm, NZD, RBA Gov Lowe Speaks

Wednesday 09/11
All Day, AUD, Congressional Elections

Thursday 10/11
8pm, FOMC Member Waller Speaks Read more

The New Zealand Dollar (NZD) extended last week’s moves on the Euro (EUR) to 0.5990 (1.6690) midweek as data supported the kiwi and weakened the Euro across the board. Headline Eurozone inflation grew again in October to 10.7% year on year revised up from 9.9% in September with energy prices the main issue along with rising food costs. Negative growth is predicted for fourth quarter 2022 and first quarter 2023 set to drop the Eurozone into recession, however how deep this recession goes lies with developments in the energy sector- a worry with winter on the horizon. NZ Employment numbers came in better than expected with a 1.3% increase in the number of working people, this remaining at a record low. Labour shortages are contributing to high inflation. We think the kiwi may push higher into the close.

The current interbank midrate is: NZDEUR 0.5917 EURNZD 1.6900
The interbank range this week has been: NZDEUR 0.5823- 0.5992 EURNZD 1.6688- 1.7173

The New Zealand Dollar (NZD) has gathered pace as the week went on against the British Pound (GBP) reaching 0.5180 (1.9300) this morning up from the weekly open of 0.5000 (1.9990). The New Zealand labour market remained tight in the third quarter with the unemployment remaining at 3.3% the same as the second quarter near record lows. The labour force participation rate increased to 71.7% the highest recorded stats began back in 1986. The Bank of England members voted 9/love raising their benchmark interest rate from 2.25% to 3.0% early this morning, the largest rate rise since 1989. The Central bank admitted that the large hike will likely drive the economy into a recession which could last well over 1 year. The Bank of England governor saying, “it’s a tough road ahead”. Customers buying Pounds should consider with chances we could see “risk off” moves take shape over coming weeks.

The current interbank midrate is: NZDGBP 0.5170 GBPNZD 1.9342
The interbank range this week has been: NZDGBP 0.4999- 0.5192 GBPNZD 1.9259- 2.0004

New Zealand Dollar (NZD) upside bias continued into Wednesday against the US Dollar (USD) travelling to 0.5940 post the Fed statement but was beaten back down soon after to 0.5820 over the couple of hours that followed. Jerome Powell signalled a higher top for interest rates and isn’t worried about over tightening, his comments completely reversed the initial dovish stance leading to a sell off reversal in stocks, commodities and risk products including the kiwi. The Fed raised rates 75 points as predicted to 4.00% with Powell saying he would consider slowing the pace of rises at the December meeting but the pace of the increases shouldn’t be misread as a signal the Fed was backing away from hiking any time soon. US Non-Farm Payroll prints in the morning with expectations the number of newly employed people will jump higher as it has done over the past 6 months. Certainly, Powell is hoping this number is soft and a slowdown of sorts gets underway ultimately giving him some leeway with raising future interest rates.

The current interbank midrate is: NZDUSD 0.5767
The interbank range this week has been: NZDUSD 0.5739- 0.5940

The divergence between the RBA and the RBNZ is becoming evident as the New Zealand Dollar (NZD) continues to rally off the back of varying tones. It’s been 5 weeks straight the kiwi has outperformed. The RBA raised their cash rate 0.25% to 2.85% as planned with the central bank saying future rate increases will be determined by incoming intel. The RBA’s outlook for global growth has been revised lower to 3.0% over 2023 and 1.5% for 2023 and 2024. Inflation is now predicted to peak at around 8.0% at year end and slowly drift lower over 2023. NZ Employment numbers came in better than expected with a 1.3% increase in the number of people working- near the record low with labour shortages contributing to high inflation. NZ Unemployment was slightly higher at 3.3% from 3.2%. We expect momentum to continue for the kiwi.

The current interbank midrate is: NZDAUD 0.9170 AUDNZD 1.0896
The interbank range this week has been: NZDAUD 0.9046- 0.9214 AUDNZD 1.0852- 1.1054

The Australian Dollar (AUD) underperformed over the week dipping to 0.6290 into Friday against the US Dollar (USD) as risk off flows dominated moves. The RBA raised their cash rate 0.25% to 2.85% Tuesday as widely planned with the central bank saying future rate increases will be determined by incoming data. The RBA’s outlook for global growth has deteriorated with just 1.5% in 2023 and 2024. Expectations of inflation for 2023 is around 4.75% from the current 7.3% if the RBA can manage monetary policy/rate hikes. The Federal Reserve raised rates three quarters of a percent as predicted to 4.00% Thursday with Powell saying he would consider slowing the pace of rises at the December meeting but the pace of the increases shouldn’t send a signal the Fed was done raising rates. The release sent the pair initially higher to 0.6490 before Powell’s speech reversed equity markets and the AUD back to 0.6340 within the hour. Looking ahead we have Non-Farm Payroll (NFP) tomorrow morning along with unemployment, we expect a similar rhetoric.

The current interbank midrate is: AUDUSD 0.6290
The interbank range this week has been: AUDUSD 0.6271- 0.6490

The Australian Dollar (AUD), British Pound (GBP) remained within its recent range over the week, the Aussie outperforming, reversing last week’s losses to 0.5645 (1.7720). Early in the week the RBA raised their cash rate to 2.85% form 2.6% as markets were predicting with the central bank saying future rate increases will be decided by incoming data. The RBA’s outlook for global growth has worsened over the last couple of months with 3.0% this year and just 1.5% 2023 and 2024. Expectations of inflation for 2023 is circa 4.75% from the current 7.3% if the RBA can manage interest rates. Overnight the Bank of England (BoE) members voted 9/0 raising their interest rate from 2.25% to 3.0% early this morning, the largest rate rise for over 30 years. The Central bank admitted that the large hike will likely shift the economy into a recession very soon which could last well over 1 year. The Bank of England governor saying, “it’s a tough road ahead”. Despite the AUD improving we still believe it’s a good time to sell GBP.

The current interbank midrate is: AUDGBP 0.5635 GBPAUD 1.7746
The interbank range this week has been: AUDGBP 0.5516- 0.5672 GBPAUD 1.7628- 1.8126