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Kiwi tumbles as RBNZ shifts toward an easing bias

NZD - New Zealand Dollar

The New Zealand dollar plunged through trade on Wednesday dropping 1.6% in the wake of the RBNZ’s shock policy announcement. Markets widely anticipated board members would leave the OCR unchanged and maintain a neutral policy setting, allowing the NZD to sustain its short term run of outperformance. But the countries Central Bank stunned investors announcing an unequivocal shift toward an easing bias, in a deliberate bid to drive rates and the currency lower.

Having fallen through 0.68 in the moments following the announcement the Kiwi settled to trade within a constrained range through the rest of the day, bouncing just a few points either side of the midpoint of the last 6 months as immediate selling pressures exhausted themselves. As risk appetite falters a deeper correction toward 0.6750 through the coming days is on the cards as our attentions turn to ANZ business confidence data today as a key marker of short-term direction.

Key Movers

Brexit, Brexit, Brexit. The UK’s departure from the European Union remains a primary driving force and focus across currency markets as investors attempt to unravel the minefield of political uncertainty that has engulfed divorce proceedings. The Pound found support overnight edging back above 1.32 as Theresa May offered to step down if MP’s voted in favour of the current EU exit plan. In a Hail-Mary push to persuade conservative party dissidents to back her plan May has promised to quit before the next phase of negotiations, seemingly improving the likelihood a no deal break will be avoided. We anticipate Sterling will continue to fluctuate within largely constrained ranges, bouncing between 1.29 and 1.33 in the lead up to a definitive next step announcement at which point with implied volatility at its highest level since the 2016 referendum we’d anticipate a significant knee jerk correction in the order of 5% - 10%. All eye on the UK and headline news.

Expected Ranges

NZD/USD: 0.6750 -0.6850 ▼

NZD/EUR: 0.5980 - 0.6080

GBP/NZD: 1.9150 - 1.9650 ▲

NZD/AUD: 0.9520 - 0.9660 ▼

NZD/CAD: 0.9030 - 0.9180 ▼