NZD - New Zealand Dollar
Much likes its antipodean counterpart the NZD shifted lower through the back half of last week as investors tempered moves as short-term optimism was checked. Having fallen back below 0.6350 the NZD closed the week buying 0.6349 US cents. Risk appetite was largely maintained through Friday as phase one of a US-China trade deal progressed and the threat of a no deal Brexit abated, prompting investors focus to shift back toward underlying fundamentals and central bank monetary policy ahead of what promises to be a bust week ahead.
While much of the market anticipates the RBNZ will lower interest rates in November there is still scope for NZD upside and a sustained period of outperformance should the Federal Reserve promise cumulative rate cuts. A promise of multiple rate adjustments from the FOMC will bolster emerging market FX, while carrying the kiwi higher as one of few major high yield alternatives.
With local markets closed for Labour Day long weekend and little on the docket for Tuesday we expect ranges to be relatively tight in the lead up to Wednesday Federal Reserve policy decision and rate statement with the NZD holding between 0.6250 and 0.6450.
The USD, JPY and Sterling are the key majors in focus this week with both the Federal Reserve and Bank of Japan delivering monetary policy updates while the Pound remains hamstrung and beholden to Brexit headlines and the possibility of yet another general election.
The US Federal Reserve is expected to cut interest rates this week following a string of poor data sets throughout September. Employment growth and consumer spending have both stalled in recent months leaving the door open to the Fed possibly delivering a message of multiple rate cuts. That said, we expect the fed will proffer a wait and se approach, preferring to act should the economy slow further. Such a message could be seen as hawkish and prompt short term USD upside.
The Bank of Japan is expected to cut interest rates this week by 10 basis points, while announcing additional measures to negate the side effects of negative rates on Japan’s financial sectors. A cut could prompt a USD/JPY rally however as the effectiveness of rate cuts diminishes we anticipate the rally would be capped at or near 3%, with resistance on move approaching 109.
The Great British Pound fell through trade on Friday as the European Union failed to set a new date for Britain’s exit from the bloc. While an extension has been agreed in principle there is debate as to the length of the postponement with some European leaders, lead by French President Emmanuel Macron suggesting any form extension is simply not justified. The GBP will be beholden to Brexit headlines
0.6280 - 0.6390 ▼NZD/EUR:
0.5690 - 0.5780 ▼GBP/NZD:
2.0010 - 2.0310 ▲NZD/AUD:
0.9280 - 0.9380 ▼NZD/CAD:
0.8250 - 0.8440 ▼