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Markets were relatively calm due to the US Juneteenth public holiday, with US equity, bond, and most commodity markets were closed. The NZ current account deficit was reported at -6.8% of GDP yesterday. Progress in reducing it has been very slow, raising concerns that ratings agencies may reassess their tolerance for how long it will take to return to more sustainable levels. Also, RBNZ Chief Economist Paul Conway’s speech yesterday about inflation had no market impact, he emphasized that a period of tight policy is needed to ensure inflation returns to target within a reasonable timeframe.
Out of the UK, May headline CPI fell to the target of 2.0%, mainly due to lower goods and energy prices. However, services CPI remained high at 5.7%, only slightly down from 5.9%. This figure is 40bps above the latest BoE staff estimate of 5.3%. The slow decline in services inflation is expected to support the MPC’s stance on maintaining higher rates for a longer period.
NZDUSD is stable, supported at 0.6100 and facing resistance at 0.6150. The release of GDP data today could potentially cause the exchange rate to move beyond this range. If the GDP data is weaker than expected, the market is likely to react strongly because other recent indicators have also been weak. Even if the GDP data shows a small improvement, it might not be seen as significant due to the increase in population over the past year, meaning any positive movement in the exchange rate might not last long.
NZDAUD continues to decline after the RBA’s recent actions disappointed those expecting a bearish outcome. A significant downward shift might require a change in stance from the RBNZ, but nothing new was indicated by RBNZ’s Conway in his recent speech, which reiterated the May MPS message. The expected support around 0.9200-0.9210 didn’t hold, so the next potential support is at 0.9160-65. However, a very weak GDP report could push it further down to the lows of around 0.9065 seen in May.
Locally, the focus will be on the NZ Q1 GDP data release, with +0.2% q/q growth and NZ would exit recession.
| Currency Pair | Mid-market rate |
| NZD/USD | 0.6145 |
| NZD/AUD | 0.9212 |
| NZD/JPY | 97.14 |
| NZD/CNY | 4.4742 |
| NZD/EUR | 0.5720 |
| NZD/GBP | 0.4830 |
| NZD/HKD | 4.7973 |
| NZD/SGD | 0.8299 |
Here are the latest mid-market rates:
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