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Kiwi range bound ahead of RBNZ policy meeting

NZD - New Zealand Dollar

The New Zealand Dollar fell through the early part of the domestic session, following the AUD lower as tensions between Australia and China add to uncertainty within the region and weigh on expectations of recovery for the global economy. Having touched intraday lows at 0.6039 the NZD rebounded through the overnight session buoyed by a USD correction ahead of today's commentary from Federal Reserve President Jerome Powell. Markets have begun pricing in negative US interest rates before the end of the year, and while the Fed has staunchly ruled out cutting rates below zero today’s commentary from Powell will offer a key insight and forward guidance on future monetary policy expectations. Pushing through 0.61, the NZD touched session highs at 0.6122 before correcting lower into this morning’s open, where it currently buys 0.6080 US cents.

Attentions today turn to the RBNZ policy meeting and monetary policy statement. We anticipate the board will elect to leave interest rates on hold at 0.25% having promised to do for 12 months in March. However, momentum has been building for a push to negative interest rates with some markets already pricing in a move below zero before the end of the year, and we will be keenly attuned for any backtrack or hint to future adjustments in today's rate statement. We expect the RBNZ will also increase its current QE platform. The RBNZ has already adopted an aggressive stimulus program designed to steer the economy through the uncertainties of the COVID-19 pandemic, and we expect it to increase its monthly bond buying facility.

The RBNZ aggressive platform has weighed on the NZD when valued against key counterparts namely the AUD and a miss on policy decisions with the RBNZ undershooting market expectations could help recoup lost ground and bolster short tern NZD demand.

Key Movers

The US dollar fell through trade on Tuesday as investors square positions ahead of commentary from Fed President Jerome Powell and a slew of softer macroeconomic data sets. The DXY index fell back below 100 after consumer prices, a gauge of inflationary pressures, fell almost 1 % in April, the largest single month decline sine December 2008. The dip marks the second consecutive depreciation and highlights the scale of economic impact that has accompanied the COVID-19 health crisis. With the number of new cases still rising rapidly in the US the economies' ability to roll out of this pandemic and bounce back quickly is shrinking by the day, weighing on policy expectations and long run USD pricing.

The Euro edged higher on the day but remains under pressure following last weeks German court ruling. While the ECB has defended its bond buying program, rejecting the court decision, suggesting it could be illegal under EU regulations the decision still throws the long term viability of the combined unit into question. If national courts can reject EU law then the project is essentially doomed. Having edged back toward 1.0850 we anticipate the currency will face further headwinds as it battles the virus and its devastating economic impacts with a move toward 1.06 a real possibility in the months ahead.

Expected Ranges

NZD/USD: 0.5980 - 0.6150 ▼

NZD/EUR: 0.5520 - 0.5680 ▼

GBP/NZD: 2.0020 - 2.0480 ▼

NZD/AUD: 0.9315 - 0.9450 ▼

NZD/CAD: 0.8490 - 0.8620 ▲