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NZD remains soggy ahead of RBNZ policy update

Wednesday 24 November, 2021

Daily Currency Update

NZD - New Zealand Dollar

The New Zealand dollar's recent struggle continued through trade on Tuesday, testing a break below 0.6920. Higher global rates continue to support the recent USD upswing and markets remain ambivalent to the NZD yield advantage, with direction divorced from domestic monetary policy announcements. That said, today’s RBNZ policy update could spark further volatility, with investors drawn on whether policymakers will opt for a 25 or 50 basis point hike. We expect the MPS will issue a 25-point hike, reluctant to move too quickly given mortgage rates have already jumped higher in recent months and the country's COVID-19 outlook remains uncertain. The RBNZ’s rate cycle is well ahead of major counterparts, and there is little rush to normalise rates. With the economy now on track to underperform key partners and mortgage rates already priced higher, further aggressive rates hikes could act as a drag on the NZD moving forward.

Key Movers

Price action across currency markets were largely well contained through trade on Tuesday, with only modest changes in broader positions through the past 12-24 hours. The USD continues to test new highs when measured against a basket of major counterparts, extending beyond 115 against the Japanese yen, marking highs not seen since 2017 while forcing the GBP below 1.34 and 1.3350 toward intraday lows at 1.3345. The euro found some support, moving against the grain and pushing back above 1.1250 on the heels of better than expected PMI data and hawkish commentary from ECB policy member Schnabel. European PMI’s for October, suggest the economy is withstanding the pressures created by supply constraints and higher energy prices, while Member Schnabel noted inflation risks remain skewed to the upside. This hawkish remark has been pounced on as a potential marker and shift in ECB policy, and could preclude a move in monetary policy sooner than currently anticipated. Having touched intraday highs at 1.1275 the euro edged lower into the daily close and currently sits marginally below 1.1250. With new lockdown measures likely to crimp Q4 and Q1 2022 growth expectations, risks remain broadly skewed to the downside for now.

Expected Ranges

  • NZD/USD: 0.6850 - 0.7020 ▼
  • NZD/EUR: 0.6090 - 0.6250 ▼
  • GBP/NZD: 1.9090 - 1.9350 ▲
  • NZD/AUD: 0.9520 - 0.9720 ▼
  • ARS/CAD: 0.8730 - 0.8870 ▼