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NZD dragged lower by dovish RBA and broader positional adjustment

Wednesday 3 November, 2021

Daily Currency Update

NZD - New Zealand Dollar

The New Zealand dollar gave up over 1% through trade on Tuesday, breaking outside recent support and resistance handles to test 0.71 US cents. Having touched intraday highs at 0.7190 the NZD fell steadily through the latter hours of the domestic session and continued the downtrend overnight as the bias for global rates shifted toward the downside following the RBA’s November policy update. Governor Lowe and the RBA offered minimal changes to their forward guidance and inflation projections, maintaining Australia is different to other major economies, anticipating inflation will not move significantly beyond their target band until late 2023. Lowe pushed back on expectations for an interest rate hike next year, saying “it is extremely unlikely”. The overtly dovish assessment saw the AUD drift lower and the NZD was dragged down with it, a move compounded by a broader risk off tone across currencies. Our attentions turn now to the RBNZ’s financial stability review, followed by labour market data and rolling into the US Fed update tomorrow.

Key Movers

A risk off tone enveloped currency markets through trade on Tuesday, moving in contrast with a sustained record-breaking gain across equities. The safe-haven USD and JPY outperformed as risk assets were driven lower. The NZD and AUD lead losses while the CAD and GBP also gave up some three tenths of a percent, while the EUR staved off any significant sell off, tracking sideways on the day. Our attentions turn now to the US Federal Reserve and Bank of England policy updates as key markers of divergence. Both have proffered relatively hawkish economic assessments. In particular, we are keenly attuned to any shift in fed policy following a significant position adjustment through October. The treasury curve has flattened as investors look to anticipate the timing of future rate hikes. With many expecting the fed will announce it will commence tapering QE support from December, the pace and speed of the tapering will be crucial as markets price in rates hikes, coinciding with the end of QE in the middle of next year. We are keenly focused on President Powell’s commentary and whether policymakers push back on rate hike expectations.

Expected Ranges

  • NZD/USD: 0.7020 - 0.7190 ▼
  • NZD/EUR: 0.6080 - 0.6190 ▼
  • GBP/NZD: 1.8990 - 1.9320 ▲
  • NZD/AUD: 0.9520 - 0.9620 ▲
  • NZD/CAD: 0.8780 - 0.8890 ▼