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All eyes on RBNZ and policy announcement

NZD - New Zealand Dollar

The New Zealand Dollar edged marginally higher through trade on Tuesday, consolidating a break back above 0.66 to test resistance at 0.6650. Investors appeared reluctant to extend NZD upside ahead of today’s RBNZ policy announcement allowing selling pressure on moves above 0.6650 to keep the weeks rebound in check.

We anticipate the RBNZ will refrain from cutting interest rates at this month’s policy meeting, maintaining the 1.5% cash rate and affording the economy more time to respond to the adjustment made in May. Attentions instead will be drawn to commentary surrounding the policy decision and with no press conference following this month meeting investors will be looking for any hints as to the timing of further easing. The bank and its monetary policy setting committee will review broader ongoing inflation softness, slowing growth and external demand and broader global risks sparked by increasing international trade and geo-political tensions. With the likelihood of a cut increasing as we move through Q3 we expect a second rate cut in August with most analysts and market participants pricing in another two 25 basis point cuts before year end. Watch resistance on moves approaching 0.67 with support on breaks below 0.66 and approaching 0.6530.

Key Movers

The US Dollar fell through trade on Tuesday when compared with most major trading partners, touching three-month lows against the Euro, which drove the broader dollar index through 96.50 and toward a break below 96. Persistent repositioning on expectations the Fed will cut rates in July and again before the year is out have hampered the worlds base currency as analysts adjust long term USD expectations and play catch up with yield curve and futures indicators.

Sterling bounced off one-month highs on Tuesday, giving up gains enjoyed in the wake of last weeks Bank of England policy meeting, moving below 1.27 to touch 1.2670. Concerns the outcome of the Conservative Party leadership contest will spur a no-deal Brexit weighed on investors. Front runner, Boris Johnson is a known Euro-sceptic and his emergence as the likely next PM has forced markets to become more alert to the prospect of a deal Brexit.

Expected Ranges

NZD/USD: 0.6480 - 0.6700 ▲

NZD/EUR: 0.5780 - 0.5930 ▲

GBP/NZD: 1.8980 - 1.9350 ▼

NZD/AUD: 0.9450 - 0.9620 ▲

NZD/CAD: 0.8650 - 0.8820 ▲