- NZD/USD was hit on Monday along with a further decline in global risk assets and commodities.
- The pair fell to new lows since June 2020 at 0.6350.
- The focus is on US and New Zealand CPI inflation expectations data later in the week, which could weigh on central bank expectations.
The NZD/USD was hit on Monday along with a further decline in global risk assets and commodities as investors worried about central bank tightening, soaring inflation, slowing global growth and events that continue to make these worse. economic issues, such as the Russo in progress. -War in Ukraine and closures in China.
The pair last traded down more than 1.0% at 0.6330, its lowest levels since June 2020 and more than 3.5% below last Thursday’s highs at 0.6500 above. Since hitting multi-month highs just over a month ago above the 0.7000 level, the kiwi has lost almost 10% in price.
Expectations that the RBNZ will raise rates much more aggressively and maintain a yield advantage over the Fed have done little to help shield the Kiwi from the negative impact of deteriorating global macro conditions in recent weeks. The RBNZ is expected to raise interest rates by 50bps to 2.0% later this month and money markets are quoting a 4.4% RBNZ terminal rate, well above the current market terminal rate for the Fed. Federal around 3.5%.
Some analysts think that this price of the RBNZ is excessive, which explains why it does not support the kiwi to some extent. “We think the Kiwi (money) market has gone too far, and rates will most likely drop following the RBNZ decision in a few weeks,” said Jarrod Kerr, chief economist at Kiwibank. That suggests more downside risks for the kiwi beyond global macro factors.
The main event to watch for currency markets this week is Wednesday’s release of US consumer price inflation data, which should show a slight easing in price pressures. It remains to be seen whether this will be enough to ease the dovish tone towards higher risk appetite. NZD/USD traders will also be watching for the release of a RBNZ survey of inflation expectations on Thursday.
“Inflation expectations well above the 2% target are a threat to the RBNZ’s credibility as an inflation-fighting central bank… said Kerr, who concluded that “any further increase in expectations will only boost the government’s resolve.” RBNZ to tighten aggressively.” If the data is interpreted as having an aggressive read on RBNZ policy, that could offer NZD/USD some momentary support. But any rally back to resistance in the 0.6400 area may be tempting for sellers come back.
Technical levels
Source: Fx Street
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