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The NZD gained some momentum and reached a high for the week, this was driven by a sharp drop in the USD DXY (US Dollar Index) & higher than expected US jobless claims data overnight. The US 10-year yield fell 4.1bp to 4.45%. If NZD surpasses its highs from last week, around 0.6048, it would be considered as a positive sign. This is especially noteworthy given the changing sentiments in the market regarding interest rate cuts by the Federal Reserve, with markets speculating towards two cuts this year. Most G10 currencies went higher, NZD & AUD among the better performers.
Movement in prices is favourable for the importers as the NZD rises to 0.6035. However, it seems difficult at its weekly resistance and the 200-day moving average, which is around 0.6040. If it manages to close above this level for the first time since March 20, then it could indicate potential further increase towards 0.6070. On the downside, the ideal support is at 0.5980, if this level holds then it would support a positive view regarding the strength of the NZD.
Out of the UK, the Bank of England (BoE) indicated that it’s leaning towards implementing interest rate cuts, particularly highlighted by Governor Andrew Bailey’s suggestion that markets haven’t fully prices in the expected pace of easing in the coming months. Despite this, the UK central bank decided to maintain the base interest rate at 5.25%, with the voting split at 7-2. Notably, Deputy Governor Dave Ramsden and external member Swati Dhingra advocated for an immediate rate deduction. Markets are evaluating a 50% chance for the first 25bp cut to happen next month, while expectations remained for another cut by August. Given the recent polls show the governing Conservatives trailing the main opposition Labour Party by over 20 points, the shift in sentiment from the Monetary Policy Committee (MPC) could provide Prime Minister Rishi Sunak with a boost as he aims to demonstrate the effectiveness of his economic recovery plan. Sunak faces the necessity of holding a general election within the next 9 months, and Chancellor if the Exchequer Jeremy Hunt has consistently highlighted the potential benefits of rate deductions, suggesting they would generate a positive sentiment among voters.
It’s been a week of no significant data having a major impact. Looking ahead to next week, there will be focus on the US inflation data, which is scheduled to release early on Thursday. This data is important because it highlights a tension in the market, where there have been no policy changes with inflation remaining well above 3% and growth forecasts being strong above 4%. This situation suggests that either inflation or growth will need to slow down, or interest rates will have to rise. The ongoing discussion about US interest rates, especially regarding the timing of potential rate cuts, will continue to be a major factor influencing currency trends.
Here are the latest mid-market rates:
| Currency Pair | Mid-market rate |
| NZD/USD | 0.6037 |
| NZD/AUD | 0.9116 |
| NZD/JPY | 93.82 |
| NZD/CNY | 4.3605 |
| NZD/EUR | 0.5597 |
| NZD/GBP | 0.4818 |
| NZD/HKD | 4.7179 |
| NZD/SGD | 0.8163 |
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