Daily Currency Update

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Kiwi stuck below fair value estimates; investors seek catalyst for a break

NZD - New Zealand Dollar

Trading band through much of Tuesday. The Kiwi appears stuck between short-term support and resistance handles at 0.6580 and 0.6620 and is struggling to mount any real momentum in either direction. Un uptick in dairy prices overnight helped underpin the key export as renewed strength in the Yuan and its subsequent uptick in Chinese purchasing power coupled with drought in key agricultural regions have forced prices higher and added some support to the NZD ahead of Friday’s CPI inflation report.

Much like its Antipodean counterpart the NZD has struggled to meet fair value estimates as investors grapple with contrasting forces. Improvements in global trade conditions and the signing of Phase one in the US/China trade deal weigh against the recent shift in monetary policy and sustain sluggishness in domestic economic performance and the pal of additional policy action still clouds investors decision making. A strong inflation print will add additional support to calls for the RBNZ to remain on hold through 2020 and help swing the balance toward the upside.

Key Movers

The Great British Pound was the best performer among major currencies on Tuesday, advancing through 1.30 and extending towards key short-term resistance handles at or near 1.3075/85 following an upturn in domestic jobs growth. The British economy added new employment opportunities at its fastest pace in nearly a year through the last quarter of 2020, easing mounting pressure on the Bank of England to cuts interest rates on January 30. Pricing on BoE policy action fell marginally in the wake of the print as attentions now turn to Friday’s all-important Purchasing Managers Index report. A strong PMI print will further undermine the case for an immediate rate cut and would afford the BoE more time to assess economic performance before cutting rates and offers the opportunity for GBP upside and a meaningful extension beyond 1.30.

Expected Ranges

NZD/USD: 0.6560 - 0.6630 ▼

NZD/EUR: 0.5910 - 0.5990 ▼

GBP/NZD: 1.9630 - 2.030 ▲

NZD/AUD: 0.9560 - 0.9660 ▲

NZD/CAD: 0.8590 - 0.8690 ▲