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Kiwi moves against market trend to extend back above 0.69

NZD - New Zealand Dollar

The New Zealand dollar mirrored its antipodean counterpart through trade on Monday, trading sideways throughout the domestic session before pushing back beyond 0.69 on fears the US may be headed for a recession. Having bounced between intraday lows at 0.6872 and domestic highs at 0.6886 the NZD struggled to gain any real momentum in either direction for much of the day before US long run bond yields slipped below the current Fed funds rate, making fresh lows not seen since December 2017.

Policy support for the USD has well and truly eroded through the last 3-4 weeks to which the Kiwi has outperformed, advancing 150 – 200 points since slipping below 0.6750 on March 4. Renewed optimism the RBNZ may be able to stave off calls for a turn to a more dovish policy outlook have helped bolster demand for the NZD against most major counterparts, opening the door for short – medium term upside not just against the USD but AUD, EUR and JPY.

Attentions today remain offshore as focus turns to tomorrow’s RBNZ policy announcement. Stability and maintenance of the current neutral setting could see the Kiwi test 10 month highs at 0.6940.

Key Movers

The US Dollar sell off continued through trade on Monday as markets appetite for risk faltered and investors drove hard toward the JPY and CHF as haven assets. Policy support for the USD has been all but eroded through the last 3 weeks, a fact affirmed by the Fed at last weeks FOMC policy meeting. The Fed has moved aggressively away from it’s previous tightening cycle as market indicators call for the world’s leading central bank to cut rates. The US 10 year bond yield curve moved below the Fed fund rate on Monday, touching its lowest level in 16 months, a strong sign the US growth narrative is coming to an end and the worlds largest economy may be headed for a recession. We expect further short-term USD weakness.

The Pound fell back below 1.32 on Monday as Brexit headlines again dominated direction. With just 4 days left before the March 29 deadline investors are becoming increasingly wary a deal will not be reached in time. While the EU has promised a two week extension through to April 12, it appears unlikely Prime Minster May will be able to garner the support to force through the current Brexit Bill, a fact supported by the PM herself as she affirmed on Monday there was not a strong enough backing to warrant a 3rd parliamentary vote at this time. We expect Sterling will continue to bounce between 1.30 and 1.33 until a clearer picture is available.

Expected Ranges

NZD/USD: 0.6830 - 0.6940 ▲

NZD/EUR: 0.5020 - 0.6150 ▲

NZD/AUD: 0.9630 - 0.9780 ▼

GBP/NZD: 1.8850 -1.9480 ▼

NZD/CAD: 0.9220 - 0.9320 ▲