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Kiwi buoyed by Fed’s out of cycle rate adjustment

NZD - New Zealand Dollar

The New Zealand dollar jumped sharply through trade on Tuesday, buoyed by broad based US dollar weakness following the Federal Reserve’s emergency monetary policy response to the impacts of the coronavirus. Having trended sideways through much of the domestic session the Kiwi jumped through 0.63 to touch intraday highs at 0.6325 as the fed announced an out of cycle rate adjustment of 50 basis points. Attentions now turn to the RBNZ to see if it will follow in the footsteps of the RBA and Federal reserve in lowering benchmark interest rates. With the policy setting committee no set to meet again until March 25th questions have been raised whether an out of cycle move is appropriate for the NZD. After such a protracted period of stability across currency markets the price action of the last week has spooked investors opening the door to all number of possible policy responses. While we see some scope for US softness through the short term, broader volatility and haven plays will continue to weigh on the NZD through the medium term as along as the corona virus continues to proliferate.

Key Movers

The US dollar plunged lower through trade on Tuesday, dropping against a basket of major currency counterparts following the Federal Reserves emergency monetary policy response to the impacts of the coronavirus. Fed President Jerome Powell announced an out of cycle rate cut of 50 basis points in an attempt to combat the risks to economic activity caused by the coronavirus. The FOMC pushed through the policy action ahead of its March 17-18 meeting to ensure maximum employment and price stability are maintained as fear and panic surrounding the pandemic continue to escalate. The Dollar fell to 6-week lows at 96.926 as treasury yields fell below 1%, an historical low. While reports of a global consolidated monetary policy response to the coronavirus circulated through trade on Tuesday the world’s base currency remains vulnerable to further downside through the short term. The Fed has the luxury of adjusting rates again should the economy fail to respond while other major central banks already sit at record lows and as such may be hesitant to ease policy further while the outlook is still so uncertain. The Euro Yen, Swiss Franc and GBP all advanced against the Greenback as attentions turn to other central bank heads, with the Bank of Canada interest rate announcement Thursday perhaps the first benchmark in the global monetary policy response.

Expected Ranges

NZD/USD: 0.6180 - 0.6350 ▲

NZD/EUR: 0.5580 - 0.5720 ▲

GBP/NZD: 1.9980 - 2.0520 ▼

NZD/AUD: 0.9450 - 0.9630 ▼

NZD/CAD: 0.8320 - 08490 ▲