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Kiwi hampered by risk off environment in lead up to RBNZ

NZD - New Zealand Dollar

The New Zealand dollar tested fresh lows through trade on Friday, edging below 0.66 to touch 0.6590. Having enjoyed spill over support from the RBA’s decision to maintain its current policy setting the kiwi edged higher in early trade before US-China trade tensions and increasing expectations the RBNZ will amend its monetary policy footing weighed on the embattled NZD and investors continued to short the commodity driven unit.

Since March the NZD has suffered a marked depreciation loosing almost 4 cents when compared against the world’s base currency as expectations the next move in central bank interest rates will be downward. Our attentions turn to today’s RBNZ policy meeting and accompanying rate statement as a critical marker governing NZD direction. While swap pricing suggests the market is marginally weighted toward maintenance of the status quo there is a strong argument supporting a 25 basis point cut. No cut should see the NZD find some upward support, but gains will be capped while US-China Trade tensions remain in play. A rate cut on the other hand will drive kiwi lower with the scope and scale of the move directed by the accompanying statement and forward guidance.

Key Movers

The US dollar advance continued through trade on Tuesday as US-China trade tensions fostered an appetite for haven assets and forced markets to adopt a risk off focus. Optimism surrounding a resolution to trade tensions have deteriorated this week following confirmation from President Trump that Tariff’s will be increased at the end of the month is a deal is not reached. Talks appear to have stalled with no clear resolution in sight, a dramatic turn around as most analyst were pricing in a “done deal”. Headline risk will play a crucial role in shaping short- and medium-term direction and as discussion progress diminishing risk appetite will hit risk assets hard.

Sterling lost support through trade on Tuesday as the likely cross party solutions met an impasse as talks between the Labour party and Conservatives stalled. The likelihood of a second referendum is rising and until a clear path forward is available we expect Sterling will remain range bound.

Expected Ranges

NZD/USD: 0.6530 - 0.6680 ▼

NZD/EUR: 0.5820 - 0.5980 ▼

GBP/NZD: 1.9620 - 1.9920 ▼

NZD/AUD: 0.9280 - 0.9480 ▼

NZD/CAD: 0.8820 - 0.8960 ▼