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Kiwi wobbles as RBNZ expands QE program

NZD - New Zealand Dollar

The New Zealand dollar enjoyed a modest upturn overnight, recouping losses suffered through the domestic session amid broad based US dollar weakness. The Kiwi dipped below 0.6540 to touch intraday lows at 0.6535 after the RBNZ surprised investors and brought forward the upsizing of its bond buying program. The board opted to increase asset purchases from 60billion to 100billion and extended the program another 12 months into June 2022. While many expected policy makers would bolster the monetary policy platform at some point before year's end, yesterday’s move was largely ahead of schedule, seemingly rushed through amid concerns of a 2nd wave of COVID-19 lockdowns. Suggestion of a push toward negative interest rates also added downward pressure on the NZD, markets pricing in an increased probability of a negative OCR by May next year. Despite the distinctly dovish outlook, the Kiwi remained remarkably resilient, managing any downside before rallying overnight as a risk-on tone and USD sell-off fueled upside. The NZD pushed back through 0.6550 to test resistance 0.66 before edging marginally lower into this morning’s open where it currently buys 0.6576 US cents.

Key Movers

The US dollar gave up Tuesday’s gains, drifting lower against a basket of currencies through trade on Wednesday. Negotiations between democrats and Republicans remain at an impasse and while expectations a deal will be reached in the near term remain high, there is mounting concern partisan political agendas will prompt damaging delays to much needed COVID-19 relief. US Treasury Secretary, Mnuchin said on Wednesday “we may not be able to reach a deal on coronavirus aid”. Talks have stalled, and the stalemate looks set to drag into next week, preventing fiscal support from flowing to over 30 million unemployed Americans. The dollar Index fell 0.3% and appeared poised to break back below 93, however gains against the yen and a dour GDP outlook in the UK helped counter losses suffered against the euro and commodity led counterparts. The euro pushed back toward 1.18 as investors continue the shift toward the single currency. The sharp decline in real US interest rates means the 3-month differential on yields now favours the euro, prompting investors to chase a higher return amid prospects of a quicker economic recovery.

The Great British pound failed to take advantage of the USD downturn, dampened by annualised GDP number that showed the British economy had entered a deep recession. Sterling did manage to hold above 1.30 though as improvement in growth numbers through June offered some respite to the dour outlook.

Expected Ranges

NZD/USD: 0.6480 - 0.6620 ▲

NZD/EUR: 0.5510 - 0.5620 ▼

GBP/NZD: 1.9520 - 1.9980 ▼

NZD/AUD: 0.9150 - 0.9230 ▼

NZD/CAD: 0.8630 - 0.8750 ▼