FX News

The global risk off theme sank the New Zealand Dollar (NZD) in overnight trading, in fact it was immediately on the backfoot post the weekly open travelling from 0.6080 (1.6450) levels to 0.6000 (1.6690) at the time of writing. Pivotal and physiological 0.6000 may hold for now but I wouldn’t put money on a reversal in the short term with the momentum building for further NZD declines. Equity markets remain under selling pressures as global inflation and supply issues weigh heavy. NZ inflation expectations q/q is the calendar highlight this week; we should get a better picture of where inflation could go over the coming years.

Current Level: 0.5956 (1.6790)
Resistance: 0.6040 (1.6830)
Support: 0.5940 (1.6550)
Last Weeks Range: 0.6065-0.6180 (1.6181-1.6488)

Market rot set in quickly off Monday’s open, risk conditions slumped, and equities are down large. The British Pound (GBP) regained last week’s losses shifting from the 0.5210 (1.9200) areas to 0.5130 (1.9490) into early Tuesday. Looking ahead we have NZ inflation expectations and UK prelim GDP q/q. A retest of last week’s low at 0.5115 (1.9550) the 4 March low looks a given as the bearish run continues.

Current Level: 0.5099 (1.9620)
Resistance: 0.5190 (1.9680)
Support: 0.5160 (1.9280)
Last Weeks Range: 0.5114-0.5253 (1.9035-1.9551)

Late last week’s New Zealand Dollar (NZD) recovery continued into Monday markets against the Australian Dollar (AUD) with price reaching 0.9125 (1.0960) early this morning. The AUD has fought back into midday to around 0.9085 (1.1007) as the cross continues to hold above key support at 0.9000 (1.1110). The long-range Aussie bear channel trend from 0.9435 (1.0600) remains with a break above 0.9180 (1.0900) needed to signal a possible break higher. If commodities and risk assets deteriorate further such as ore and gas investors may become increasingly pessimistic around global growth prospects, this may be NZD supportive.

Current Level: 0.9080 (1.1006)
Resistance: 0.9130 (1.1090)
Support: 0.9020 (1.0950)
Last Weeks Range: 0.9000-0.9171 (1.0903-1.1110)

Sellers of the US Dollar (USD) are loving the recent drop in the New Zealand Dollar (NZD) as it retreats to a fresh low of 0.6315 as I write. This marks 7 weeks of underperformance as global risks filter to the surface in a big way. The Federal Reserve hiked rates last week as they try to reign in massive inflation, they will hike again in the June meeting which will slow growth prospects and slow the economy. We express concerns over “risk” assets such as the NZD as further Fed hikes will have a serious impact on world economies bringing about recessions. Amid concerns, were higher April inflation expectations with polls suggesting a rise to 3.9% in 3 years from 3.7% in the March survey. Meanwhile US consumers are worried about rising house affordability and rising lending rates as sentiment towards housing hits a 2 year low with most believing it’s a troubled time to buy a house. Key data this week is in the form of NZ Inflation expectations Thursday. We think the kiwi has more downside bias over the remainder of the week.

Current Level: 0.6290
Resistance: 0.6530
Support: 0.6200
Last Weeks Range: 0.6390-0.6565

Key Points:

• Ukraine sinks Russian cruiser Moskva in the Black sea
• Bank of England raises rate by 25 points to 1.0% as expected but warns of stagflation ahead
• Chile’s central bank raises cash rate by 125 points from 7.0% to 8.25%
• Nasdaq, DOW and the S&P start May trading positive but are down over 3.0% on the day   
• Vice chair of the Federal Reserve Clarida suggests the Fed will need to raise rates to at least 3.5% to bring down inflation back to around 2.0%
• Nasdaq trades to a new 2022 low declining over 5%
• The ECB will probably raise rates and start a tightening cycle in June
• The Australian Dollar (AUD) is the strongest currency this week with the British Pound (GBP) the weakest

The Australian Dollar (AUD) traded back to 0.6850 (1.4600) post the RBA statement and rate release boosted by a surprise extra hike. The central bank hiked their interest rate from the long term 0.10% to 0.35% slightly more than the 15 points markets were predicting, helping to rally the AUD. Given only a couple of months back the RBA were adamant they were not moving rates until well into 2023 this confirmed a real mood shift in the first hike in the new tightening cycle. The RBA will start backing off bond buying and updated their inflation forecast from 5.1% to 6.0%. Governor Lowe said growth for 2022 was expected to be around 4.25% and will drop to 2.0% in 2023 with households and businesses in good shape- for now. The ECB have been talking of a possible rate hike on the horizon which should support the EUR in the near to medium term. Risk sentiment took a dive overnight with the US indices all down over 4% taking the AUD/EUR to 0.6750 (1.4820).

Exchange Rates:
The current interbank midrate is: AUDEUR 0.6750 EURAUD 1.4814
The interbank range this week has been: AUDEUR 0.6682- 0.6850 EURAUD 1.4598- 1.4965

A large move in the Australian Dollar (AUD), English Pound (GBP) cross over the week has seen price shift from 0.5610 (1.7820) to 0.5825 (1.7170) late Thursday as risk conditions improved and the RBA came out hawkish . The Bank of England raised interest rates to 1.0% overnight from 0.75% the highest level since 2009 and the fourth in as many policy meetings. The bank signalled they would move cautiously in the coming months warning of a possible recession based on an inflation ballooning out of control with predictions it could peak at 10%. Questions are being asked if the BoE should be more aggressive with hikes and “frontload” larger clips? The GBP got a push post the BoE statement reversing flow to 0.5740 (1.7420) early morning. Earlier in the week the RBA raised their cash rate to 0.35% from 0.10% in a surprise shift of 25 points and not the 15 punters were expecting. The central bank trying to stay ahead of the curve and halt rising inflation. Medium term bias could be AUD supportive.

Exchange Rates:
The current interbank midrate is: AUDGBP 0.5754 GBPAUD 1.7379
The interbank range this week has been: AUDGBP 0.5600- 0.5821 GBPAUD 1.7179- 1.7855

RBA governor Lowe surprised markets by hiking interest rates 25 points to 0.35% instead of the widely predicted 15 point move. The Australian Dollar (AUD) rose to 0.7260 levels soon after against the US Dollar (USD) but failed to consolidate here. Thursday’s Federal Reserve continued their tightening of policy, hiking the cash rate to 1.0% from 0.50%, Powell saying he would most likely repeat the hike at the next June meeting but warned against rising to fast as this could strangle the economy and send it towards a recession. Predictions are for the Fed to raise rates to about 3.25% peaking around the end of 2023. Equity indices and commodities were all lower overnight as the balance of “risk” flow turned for the worst taking the pair back to 0.7080. US Non-farm Payroll tomorrow morning will stir up the usual dose of volatility.

Exchange Rates:
The current interbank midrate is: AUDUSD 0.7118
The interbank range this week has been: AUDUSD 0.7027- 0.7263

Recent moves in the New Zealand Dollar (NZD), Euro (EUR) are suggesting the early May top of 0.6430 (1.5555) may be in the rear view mirror as price has reversed over the last 5 weeks down to 0.6100 (1.6400) this morning. Equity markets were hammered overnight and Bonds exploded, the NASDAQ is currently down over 5.30% for the day the kiwi struggled. NZ job numbers came in bang on 3.2% as predicted holding the lowest level since stats started in 1986. Looking ahead we have German and Eurozone economic sentiment followed by NZ inflation expectations q/q which could dangerously highlight where inflation might be headed over the following couple of years. The War in Ukraine should keep market sentiment low and the NZD on the backfoot for a while.

Exchange Rates:
The current interbank midrate is: NZDEUR 0.6094 EURNZD 0.6213
The interbank range this week has been: NZDEUR 0.6085- 0.6181 EURNZD 1.6177- 1.6434