NZD - New Zealand Dollar
The New Zealand dollar underperformed through trade on Thursday, unable to capitalise on an upturn in positive sentiment and a broader risk-on mood. Commentary for key RBNZ officials has amplified expectations of a reduction in interest rates and a push toward a negative OCR next year. Despite a string of improving economic data sets, led by an upturn in business confidence yesterday, policy makers remain consistently dovish. Deputy Governor Hawkesby reiterated the board’s fear inflation, growth and employment were expected to be well below target for at least the next three years, emphasising the bank's commitment to provide stimulus. Fellow RBNZ board Member Young Ha supported Hawkesby comments suggesting the bank would rather too much too soon and unwind stimulus, than too little too late. When all said and done, a push to negative interest rate in April 2021 seems likely, putting the NZD under renewed pressure when valued against key counterparts. Having recouped the days early losses against the USD, the Kiwi fell to a four-week low against its trans-Tasman counterpart, breaking below 0.92 to touch 0.9180. While we expect the NZD will remain steady against the USD through the weeks and months ahead, the widening gap in monetary policy platforms could see the NZD test 0.90 against the AUD and even drift toward 0.89 in the early first half of next year.
Attentions today turn to the RBNZ announcement on its bond buying schedule. The bank has reduced the pace of bond purchases over recent weeks, yet we anticipate they will maintain the current level into next week. A reduction in the pace of purchases may provide some short term NZD upside.
The US dollar was largely unchanged through trade on Thursday when measured against a basket of major counterparts. A victim of fluctuations in risk demand the worlds base currency countered minor losses against commodity currencies, with minor gains against haven counterparts and the euro. The single currency fell through 1.1750 following the release of the ECB’s September policy meeting minutes. The meeting account showed policy makers were concerned about the recent appreciation in currency value, perhaps opening the door to a further loosening in monetary policy in a bid to counter gains. It was noted that significant appreciation posed a risk to growth and inflation, particularly a steep or aggressive upward push. The common currency has retreated since the meeting, bouncing of highs at 1.20, perhaps limiting the market reaction. Having touched intraday lows at 1.1735, the euro edged higher into this morning’s open and currently trades hands at 1.1758. While we expect the euro will continue to outperform through 2021, the increase in COVID-19 infections and a 2nd wave will keep gains in check.
0.6510 - 0.6630 ▼NZD/EUR:
0.5550 - 0.5630 ▲GBP/NZD:
1.9420 - 1.9780 ▼NZD/AUD:
0.9130 - 0.9300 NZD/CAD:
0.8630 - 0.8730 ▼