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Kiwi upturn continues ahead of Fed rate announcement

NZD - New Zealand Dollar

The NZD edged lower through trade on Friday, giving up gains won in the wake of comments from Fed member John Williams. Having pushed through 0.6770 the NZD corrected lower into the weekend as markets adjusted expectations for aggressive Fed policy change.

With little of note on this week’s docket direction will continue to stem from Fed and FOMC interest rate expectations. Having largely shrugged off the RBNZ easing bias, the NZD has made strong gains throughout the last month, jumping off near 12-month lows to extend back toward the midpoint as expectations of a Fed rate cut gathered momentum. Short term direction is heavily reliant on Fed guidance next week with longer term forecasts for a downward correction still in play.

Key Movers

The US dollar recovered early session losses on Friday as Fed spokespersons sought to clarify comments issued from New York Fed President John Williams. Williams had argued for a pre-emptive strike on interest rates in a bid to deal with stagnant inflation forcing markets to rapidly correct interest rate expectations before Fed officials confirmed the comments were merely academic and not indicative of Fed thinking in the lead up to next weeks policy meeting. Markets are now pricing in a 25% chance the FOMC will cut rates by 50 basis points down from near 61% on Friday.

The Euro fell sharply against key counterparts, slipping against the rebounding dollar, while collapsing to touch 2-year lows against the safe haven Swiss Franc. Expectations the ECB will cut interest rates by 10 basis points on Thursday forced the 19-nation combined unit toward monthly lows and a break below 1.12. Markets are divided on whether the ECB will pull the trigger and extend its easing bias with a portion of analyst pushing back rate cuts until September with the introduction of QE at some point in early 2020. The divide leaves the door open for greater volatility this week as Policy makers could provide the catalyst that pushed the currency outside recent bounds.

Expected Ranges

NZD/USD: 0.6680 - 0.6790 ▼

NZD/EUR: 0.5920 - 0.6120 ▲

GBP/NZD: 1.8320 - 1.8810 ▼

NZD/AUD: 0.9480 - 0.9660 ▲

NZD/CAD: 0.8660 - 0.8920 ▲