Daily Currency Update

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Kiwi buoyed by surprisingly hawkish RBNZ commentary

NZD - New Zealand Dollar

The New Zealand dollar enjoyed strong gains through trade on Wednesday, buoyed by a hawkish monetary policy statement following the RBNZ’s February policy setting meeting. Markets were poorly positioned for Governor Orr’s upbeat rhetoric having overestimated the effects of the coronavirus on the central banks broader economic assessment. Having left rates on hold, Orr said while low rates were crucial for maintaining domestic economic momentum it was unlikely interest rates will be lowered again this year. Orr pointed to improvements in real wage growth, domestic economic expansion and ongoing fiscal support as driver of strength leading through 2020, while downplaying the impact of the coronavirus, suggesting the outbreak will only impact policy setting if it remains unchecked for a sustained period.

Having pushed through 0.6450, the NZD touched 0.6488 as attentions shift to US retail sales data with broader direction driven by headline announcements governing risk demand.

Key Movers

The Euro downturn continued through trade on Wednesday slipping below 1.09 again and touching 1.0877, its lowest level in 3 years. Broader Euro area industrial production slumped through December following misses in Germany and Italy earlier in the week and adding to a host of poor data sets through recent months. The string of lacklustre macroeconomic indicators, when compared with strength across key US data sets has helped foster a carry trade run on the single currency as investors short the combined unit in a race to chase a higher yield return. With calls for further policy easing gaining momentum we expect the Euro will remain under pressure through the medium term.

Safe haven’s fell as risk sentiment continued to improve as fears of a sustained economic downturn on the back of the coronavirus eased through trade on Wednesday. The JPY and the CHF were the days big losers, with the USD/JPY pushing back above 110.

Attentions remain squarely affixed to coronavirus headlines as the primary driver of risk demand while US CPI inflation data and domestic retail sales numbers headline the macroeconomic docket into the weekly close.

Expected Ranges

NZD/USD: 0.6380 - 0.6490 ▲

NZD/EUR: 0.5850 - 0.5990 ▲

GBP/NZD: 1.9890 - 2.0250 ▼

NZD/AUD: 0.9505 - 0.9630 ▲

NZD/CAD: 0.8490 - 0.8610 ▼