NZD range bound as markets wait on key central bank policy updates
Daily Currency Update
The New Zealand dollar maintained a narrow 20 pip range through trade on Monday, unable to hold onto gains won during the local session. The NZD enjoyed an uplift following better-than-expected China monthly activity indicators. Industrial production and investments were much stronger than anticipated, helping bolster hopes that stimulus measures may be starting to gain some traction.Having touched intraday highs just short of US$0.61, the NZD retreated as investors pared gains ahead of key RBA, Bank of Japan (BoJ) and Fed Reserve policy updates. Having made fresh 10-year highs against the yen in February, the BoJ policy update will prove key in shaping NZD/JPY direction.
We anticipate officials will announce an end to Yield Curve Controls and negative interest rates, fueling demand for the yen and potentially forcing the NZD back below 90. That said, if the BoJ chooses to maintain the status quo, the NZD could make a run back toward 92 or 93 as investors unwind in recent positioning.
Key Movers
There was little movement among majors through trade on Monday with the USD DXY index edging marginally higher, up 0.1%, as investors prepare for key central bank policy updates. Ahead of the FOMC policy meeting, there are 15-basis points of cuts priced in for June and just over 70 points for the year's end.Market pricing has now fallen below the Fed’s December dot plot following a string of hotter-than-expected inflation markers. Investors will be keenly attuned to any commentary that suggests a policy change is nigh.
Ahead of the Bank of Japan meeting today, reports emerged the BoJ is poised to end its yield curve controls and call an end to negative interest rates. Such a move has been much anticipated and pricing has firmed in recent weeks so it will be interesting to see the scale and scope of the market reaction should the BoJ follow through.
The yen was flat against the USD on Monday bouncing between 148.9 and 149.3, while the GBP was little changed and the euro gave up 0.2% trading down to 1.0870. Attentions are squarely affixed on the RBA and BoJ for direction ahead of the FOMC meeting later in the week.
Expected Ranges
- NZD/USD: 0.6020 - 0.6120 ▼
- NZD/EUR: 0.5550 - 0.5650 ▲
- GBP/NZD: 2.0700 - 2.1000 ▼
- NZD/AUD: 0.9220 - 0.9320 ▼
- NZD/CAD: 0.8180 - 0.8320 ▼