The New Zealand dollar starts the week at a two-year low after strong US employment figures prompted a rethink on the pace of interest rate cuts by the Federal Reserve and casting a pall over global equity markets.
Stocks slumped on Wall Street and were weaker in Europe on Friday after US non-farm payrolls showed the world’s biggest economy added 256,000 jobs in December, easily beating the 155,000 forecast by economists.
Analysts pulled back their expectations for lower interest rates in the wake of the employment data, with the Fed now seen cutting its key rate just once this year. US inflation data later this week will be closely watched as the next big test for rate expectations.
The greenback extended its rally, with the dollar index – a measure of the US dollar against a basket of currencies – up 1.1% so far this month, while the yield on 10-year US Treasuries rose to 4.77%, widening the gap with New Zealand’s 10-year government bond yield at 4.56%.
The kiwi dollar fell to 55.56 US cents at 7am in Auckland from 55.94 cents on Friday at 5pm, hitting its lowest level since October 2022.
Too far?
Still, that slump may be overdone as it dropped below a reading of 30 on the relative strength index, seen by some traders as a signal that the currency has been oversold.
“With US data beating expectations and plenty of hype around President-elect Trump’s inauguration next week, few in markets are willing to bet against the USD in the short term,” ANZ New Zealand economists said in a note. “How long that vibe lasts is uncertain, and while NZD price action looks weak, extreme short positioning raises the prospect of a short-covering rally, and thus volatility.”
While the weaker kiwi dollar may prove a boon for exporters such as Fisher & Paykel Healthcare, which derive the bulk of their revenue in foreign currencies, the downbeat tone set by Wall Street is pointing to a weak day for equity markets in the antipodes with Australian futures indicating a 0.9% decline for the S&P/ASX 200 index.
Meanwhile, Sky Network Television will be in focus with reports in The Australian newspaper that Rugby Australia is closer to signing a new five-year broadcasting deal with Nine Entertainment and could increase on the existing A$30 million a year contract. Sky is currently in negotiations with NZ Rugby over rights on this side of the Tasman.
Local data this week include November building consents today and partial inflation readings for the December quarter on Thursday.
Among DIY retail investors last week, the top three buys for Jarden Direct clients was the Smart Bitcoin exchange trade fund, Infratil and Spark New Zealand, and the top three sells were Westpac Banking Corp, Contact Energy and Mainfreight. Among Sharesies users, the top three buys last week were the Smart US 500 ETC, Pathfinder Global Responsibility Fund, and Pathfinder Global Water Fund.
Reporting by Paul McBeth. Image from Annie Spratt on Unsplash.