NZD range bound in quiet start to the week

Daily Currency Update

The NZD tracked sideways through trade on Monday in a quiet start to the week. With little headline newsflow on hand to drive direction and no new progress made in US debt ceiling negotiations, the NZD bounced between US$0.6260 and US$0.6290.

Domestic rates were corrected as the market re-positioned last week's brutal sell-off ahead of this week's RBNZ policy update. After fundamental forces collided with a misaligned market rate expectations surged last week. Having corrected on Monday we are pricing a 25-point hike, yet acknowledge a third of the market is still calling for a 50-point adjustment.

This week's RBNZ decision and subsequent forward guidance will prove key in shaping near-term NZD direction, particularly against key crosses like the yen and AUD. Having touched 12-month highs against the yen, extending a break above AU$0.94, a widening in the yield advantage could help drive home near-term gains ahead of a longer-run downward correction. NZ yield curves have steepened dramatically in recent weeks, a clear sign the domestic economy is headed for recession.

With little of note on today’s domestic calendar, our attentions remain on US debt ceiling negotiations and US/European PMI data ahead of the RBNZ decision.