Home Daily Commentaries Kiwi continues to recover losses as reflation narrative is rejuvenated

Kiwi continues to recover losses as reflation narrative is rejuvenated

Daily Currency Update

NZD - New Zealand DollarThe New Zealand dollar continues to recover the losses suffered in last weeks dramatic price action, pushing through 0.7070 to touch intraday highs at 0.7072. A sense of calm has permeated markets in recent days as the panic of last weeks correction subsides and investors re-assess expectations. Markets largely ignored commentary from key Fed officials overnight, seemingly content in the expectation monetary policy will remain accommodative for some time yet. Comfortable in the knowledge financial conditions will not change in the near term, investors resumed buying in equities and chased risk assets higher. In this environment we expect the NZD will continue to recover the unjustified sell off and edge back toward ranges between 0.7150 and 0.7315. Our attentions today turn to the US PCE index as a key measure of inflationary pressure, while the rejuvenated reflation narrative gathers momentum.

Key Movers

The US dollar tracked sideways through much of Thursday as losses against key commodity-led counterparts were offset by a downturn in the GBP. The Great British pound was the days biggest loser among majors, underperforming following a surprisingly dovish statement from the Bank of England. Sterling fell through 1.39 overnight, touching intraday lows at 1.3891, after the Bank of England opted to keep its policy setting unchanged, suggesting any adjustment in interest rates will only happen when there is significant evidence the 2% inflation target can be sustainably achieved. The BoE was clear to indicate it sees the current inflation forecast as transitory and while it is likely prices will rise in excess of 3%, there is an expectation they will moderate once supply constraints and pandemic pressures ease. Policy makers were careful to note they preferred to lean toward downside risks and keep policy accommodative when in doubt, for fear of undermining the recovery. Markets had expected the Bank of England would indicate a possible tightening of interest rates in Q2 2022 and the lack of nod to a shift in policy hurt the GBP. The euro maintained a narrow range bouncing between 1.1920 and 1.1950, while the yen regained some ground against the USD, forcing it back below 111 toward intraday lows at 110.725.

Expected Ranges

  • NZD/USD: 0.7020 - 0.7130 ▲
  • NZD/EUR: 0.5890 - 0.5950 ▲
  • GBP/NZD: 1.9530 - 1.9950 ▼
  • NZD/AUD: 0.9270 - 0.9350 ▲
  • NZD/CAD: 0.8630 - 0.8750 ▲