Kiwi outperforms as markets look to easing stimulus
Wednesday 19 May, 2021
Daily Currency UpdateNZD - New Zealand DollarThe New Zealand dollar outperformed through trade on Tuesday, extending through 0.7250 amid broad based US dollar weakness. The NZD crept higher through the domestic session as a broader USD sell-off extended into the overnight session and allowed the Kiwi to touch intraday highs at 0.7270, rebounding strongly having underperformed on Monday. The NZD advance was helped by price stability across dairy prices with the GDT dairy auction delivering a moderate dip across key milk products, maintaining much of the recent 40%+ appreciation enjoyed over the last 12 months. We continue to maintain our medium-term bullish bias for the NZD, with an improving domestic macroeconomic backdrop, elevated commodity prices and a generally positive risk narrative driving upside. While we acknowledge there are short term inflation lead headwinds, a break above resistance at 0.7315 could signal an extension toward 0.74. Attentions remain with next weeks RBNZ policy meeting and any signal the policymakers are considering an end to monetary policy stimulus.
Key MoversThe US dollar and Japanese yen underperformed through trade on Tuesday while the euro and pound sterling enjoyed renewed demand. The US dollar fell against all major counterparts while the yen struggled following a sharp decline in Q1 GDP data. Economic activity contracted nearly 1.5% in the three months to March 31 while leading indicators suggest a similar decline through Q2. Japan has failed to control COVID-19 and is in the grip of another wave of infections that have prompted tightening restrictions and an evaporation of corporate investment. With the threat of a double dip recession looming, we anticipate outside a risk-off environment, the JPY will struggle to mount any upside momentum.Despite a contraction in GDP the euro extended through 1.22 touching new highs at 1.2230 while the pound sterling broke 1.42 to touch 1.4220. With the UK continuing its push to vaccinate the population by July and Europe’s own immunisation program gathering momentum, the scope for easing restriction and economic recovery should support both currencies through the medium to long term.
- NZD/USD: 0.7170 - 0.7315 ▲
- GBP/NZD: 1.9320 - 1.9680 ▼
- NZD/AUD: 0.9220 - 0.9330 ▲
- NZD/CAD: 0.8680 - 0.8790 ▲