The New Zealand Dollar pair deteriorated overnight as global concerns over the highly contagious Delta Covid-19 variant weighed on sentiment. Market participants ignored Delta’s initial spread, with vaccine rollouts boosting optimism that it wouldn’t dent economic growth. The tide is quickly shifting, however. The US Dollar is also weighing on NZD as rate hike bets rise following last week’s NFP report.
Furthermore, Goldman Sachs downgraded its expansion forecast for China. Analysts at the bank see Covid-induced lockdowns and social distancing measures dragging on spending and consumption. The People’s Bank of China (PBOC) cut reserve requirement ratios for banks in a surprise move last month. Slower growth may force Beijing to ease fiscal and monetary policy further, especially if Covid restrictions persist.
Whilst the Chinese economy is vital to global growth and capital markets, New Zealand is particularly susceptible due to its economic and trade proximity. Additional easing actions from the PBOC may shore up support, but the central bank faces a difficult situation as it tries to balance easing measures against surging prices. Consumer and producer prices remained elevated in July, according to government data released this week. CPI rose 1.0% on a y/y basis, while PPI increased at 9.0%, both beating analysts’ estimates.
Tuesday morning, New Zealand reported electronic retail card spending data that provided insight into the retail sector. Card spending for July increased 0.6% on a m/m basis, down from 0.8% in June. On a year-over-year basis, card spending rose to 4.7% from 4.0% the month prior. The data shows the Kiwi economy is performing well domestically as consumers spend money.
The Australian Dollar typically exhibits a high correlation with China’s economy, which can open the door for AUD/NZD to underperform. Australia’s ongoing lockdowns as it battles Covid outbreaks serve to reinforce the premise behind that position.
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