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Kiwi resilient in the face of risk-off vibe

Daily Currency Update

NZD - New Zealand Dollar

The New Zealand dollar showed some resilience in the face of a sustained risk-off vibe as Tuesday’s cautious tone permeated trade on Wednesday. Admittedly price action across currency markets was largely muted and investors abstained from larger plays; however, with equities drifting lower amid profit-taking and concern surrounding the spread of the Delta variant across several US states, the NZD maintained a narrow trading handle. The Kiwi toyed with support and resistance on either side of 0.71 US cents bouncing between 0.7080 and 0.7115. With both the AUD and CAD losing ground to the USD, the NZD enjoyed modest gains against its commodity let counterparts testing resistance at 0.9640 against the AUD while breaking 0.90 against the CAD for the first time since April.

Our attentions today turn to commentary from Fed and FOMC committee member Kaplan for his insights on softening labour market performance and the likely timeline to tapering, while the ECB policy update presents the possibility for volatility across the NZD/EUR cross.

Key Movers

Price action across currency markets offered little to excite investors through trade on Wednesday as Tuesday’s risk-off vibe dampened recent sentiment-driven gains and allowed the USD to enjoy a modest uptick. The Great British pound remained firmly entrenched within a handle between 1.3730 and 1.3790, the euro edged toward 1.18 ahead of tonight’s ECB policy update and the CAD softened following the Bank of Canada policy meeting. As expected the board elected to maintain the current policy setting amid weaker than anticipated Q2 growth. Expectations for further tapering remain in play but with the pace of recovery behind schedule, some investors looked to adjust their expectations weighing on the Canadian dollar.

Our attentions now turn to the ECB. Over the last week there have been growing calls for the bank to move away from its current policy mandate and toward normalisation of monetary policy. We expect the ECB will announce a reduction in its PEPP Pandemic bond-buying program from 80bn to 60bn and temper language around future policy updates in a bid to shift away from any possibility of rate cuts. A move towards neutral could help provide near term euro support; however, we anticipate that this will be unwound in the medium-to-longer term as the path to policy normalisation for the ECB remains well behind its major central bank counterparts.

Expected Ranges

  • NZD/USD: 0.7030 - 0.7150 ▼
  • NZD/EUR: 0.5950 - 0.6050 ▲
  • GBP/NZD: 1.9220 - 1.9480 ▼
  • NZD/AUD: 0.9580 - 0.9660 ▲
  • NZD/CAD: 0.8970 - 0.9050 ▲