Home Daily Commentaries NZD marks new 2 year low as markets eye Fed policy update

NZD marks new 2 year low as markets eye Fed policy update

Daily Currency Update

The New Zealand dollar edged lower through trade on Monday, unable to shake off the dovish correction started in early April. Having opened above 0.6470 the NZD crept steadily lower through the day before finding some support on moves approaching 0.64 US cents. In the context of recent volatility Monday’s moves were relatively modest yet the NZD still managed to mark fresh 2-year lows as market momentum remains squarely behind the USD ahead of this Thursday’s Fed and FOMC monetary policy update. While the NZD will face sustained headwinds through the week, we expect some moderation in recent volatility in the lead up to Thursday’s all-important announcement. Price action across bond markets cooled through Monday as investors square positions, ready to respond to what is expected to be a clear shift toward policy normalisation from the Fed.

Key Movers

The US dollar enjoyed broad based gains Monday as equity markets maintain a cautious approach ahead of higher rates and risk sentiment continues to soften. The DXY index traded close to a 20 year high as the Euro slumped below 1.05 to touch intraday lows at 1.0490, the GBP plunged through 1.2550 and 1.25 to mark new lows at 1.2470 and the Yen gave up more ground allowing the USD to consolidate a break above 130. Markets attention remains affixed to this Thursday Federal Reserve FOMC policy update. Markets have priced in an aggressive repositions in Fed forward guidance expecting policy makers will announce a 50-basis point hike in the underlying fed funds rate and clear signal quantitative supports will soon be tightened. Momentum is squarely behind the USD as it maintains a robust yield advantage over the majority of major counterparts. With such aggressive price action, particularly across bond markets a miss in the context of expectations could prompt a sharp correction while a policy announcement that exceed market estimates will likely consolidate recent USD gains. With little else of note ahead of Thursday’s announcement we expect a semblance of stability through the coming days as markets square positions.

Expected Ranges

  • NZD/USD: 0.6370 - 0.6490 ▼
  • NZD/EUR: 0.6080 - 0.6150 ▼
  • GBP/NZD: 1.9320 - 1.9550 ▼
  • NZD/AUD: 0.9080 - 0.9180 ▼
  • NZD/CAD: 0.8230 - 0.8320 ▼