Stuart Thalmann, XE Currency Strategist
A sharp drop in the University of Michigan Consumer Sentiment Survey was headline news in Friday’s US session, hitting a six-month low (57.7 compared with 63.5 the previous month) amid a deadlocked debt ceiling and broader concerns. plummeted to The trajectory of the US economy.
The three major U.S. stock indexes were trading comfortably in positive territory early in the week’s final trading session, but performed well after a survey announcement that led to a notable rise in five-year inflation expectations.
While one-year inflation expectations fell (from 4.6% to 4.5%), five-year inflation expectations rose to 3.2% (3.0%), the highest level since 2011.
Why is this important?
If workers expect higher inflation over the next few years, they will demand higher wages. Firms will then raise prices … accelerating the wage-price spiral.
The New Zealand dollar’s depreciation, already under pressure through domestic and European trade, was further amplified through US trade, with an intraday loss of over 1.70%, a notable laggard on the G10 leaderboard. The Australian dollar is the second lowest, down about 0.85%.
Why was the kiwi’s decline so much greater than its major non-USD peers?
In local trading on Friday, the RBNZ’s survey of inflation expectations for the June quarter was released. Unlike the University of Michigan survey, a survey of local business owners found inflation expectations fell from 3.30% to 2.79% in two years, well below the RBNZ’s target range of 1-3%. Reported to be back in range.
It is the first time since 2021 that it has fallen below 3%.
This does not mean the RBNZ’s job is done, but it is encouraging news given that inflation remains worryingly high.
The RBNZ is widely expected to raise the OCR by 25bps to 5.00% on May 24th.
Asia struggled to regain a foothold above $63 in the morning, but selling pressure increased on the NZDUSD after the RBNZ research announcement.
Ending the week below US$62, the kiwi fell more than 3% from two-day highs to troughs, wiping out NZ dollar bulls’ hopes of a breakout above US$64.
The April 5th and May 11th highs have now formed a notable double top at the 0.6380 level, confirming that price action is firmly entrenched in the general 3-month range of 0.6100-0.6385. It is
The New Zealand dollar fell -1.60% against the dollar this week, its biggest weekly loss since early January. Only the Swedish krone suffered a big weekly loss, down nearly 2%.
Kiwi has posted a slight weekly loss to its cross-Tasman peers and price movements suggest the NZDAUD may struggle to recover above $0.94. The April 5th and May 11th highs formed a double top in the 0.9430/40 area…Friday’s close occurred within a few pips of 0.9300.
Australian house prices are not only stable but have recently recorded a modest rise, population growth is trending upwards, and potentially inflation-promoting efforts into the federal budget last week.
NZDAUD Trajectory Expectations With Q2 Reminder – Feedback Towards 0.90.
As we look to the coming week, the debate over the debt ceiling is likely to get the most attention, given the relatively minor release of data in the first phase. So far, congressional leaders have made no progress toward an “X date,” scheduled for the first or second week of June.
If Republicans and Democrats fail to move forward this week, U.S. stocks are likely to struggle and possibly a weaker dollar. The kiwi could outperform the US dollar (if the US dollar fails to attract safe haven flows) but is likely to struggle in crosses amid worsening risk sentiment.
This week’s featured data points/releases include RBA minutes, US retail sales, Eurozone GDP, and Japanese and Australian employment numbers.
Last week he threatened the possibility of a topside breakthrough for the Kiwis.
After two days of banging, what are the odds of a bottom breakout below 0.61 this week?
Given the potential for a stuck debt ceiling to weigh on the dollar, we think the odds are low… NZDUD will continue to settle in the 0.6100-0.6300 range.
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Stuart Talman is the Director of Sales at: XE.you can contact him here.