Daily Currency Update
The New Zealand dollar continued to test new lows on Tuesday amid a sustained risk off narrative and uncertainty in the lead up to the Fed policy meeting. Having given up 0.68 US cents on Monday, the NZD enjoyed mixed fortunes through trade on Tuesday, touching intraday lows at 0.6736 before finding support and extending back above 0.6750. Having touched a session high at 0.6770 the NZD retreated into the Australasian open where it currently buys 0.6740 US cents. Our attentions remain affixed to this week's FOMC policy update. Markets have largely ignored domestic monetary policy and instead looked to Federal Reserve policy change in guiding direction. Markets have high expectations for a definitive and accelerated FOMC tapering and anything seen to fall short of expectations has the potential to help drive the Kiwi back above 0.68, while an aggressive path to normalisation could see the NZD mark new year to date lows and bring into focus the lower end of our medium term range between 0.66 and 0.71.
Key Movers
Price action across major currencies was modest through trade on Tuesday as the risk off narrative prompted sustained softness across commodity led units, with the CAD the day's big loser. The USD index remains elevated, with most majors maintaining a narrow handle through the day. We expect volatility will remain suppressed in the lead up to the FOMC and Fed policy update as investors square positions, poised to shift focus following the policy announcement. Our focus remains affixed to key central bank updates and with the Fed, BoE, BoJ and ECB all meeting this week any divergence in the path to normalisation could drive volatility into the end of the year and 2022.
Expected Ranges
- NZD/USD: 0.6680 - 0.6820 ▼
- NZD/EUR: 0.5950 - 0.6020 ▼
- GBP/NZD: 1.9480 - 1.9730 ▲
- NZD/AUD: 0.9450 - 0.9530 ▲
- NZD/CAD: 0.8620 - 0.8920 ▲