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Kiwi pushes back above 0.72 ahead of key US stimulus plan

NZD - New Zealand Dollar

The New Zealand dollar opened higher this morning having advanced back through 0.72 US cents overnight. With little of note to drive change through the domestic session, the NZD tracked largely sideways, bouncing between 0.7170 and 0.72 as investors withheld bets ahead of key commentary from President-elect Joe Biden and Fed Chair Jerome Powell. Biden is expected to outline part one of his economic plan to recovery, a plan tipped to include up to $900 million in direct COVID relief and $2 trillion in broader stimulus. With weekly jobless claims climbing to their highest level since March, accommodative monetary and fiscal support is crucial if the US is to rebound quickly in H2 2021. Having pushed back through 0.72, the NZD extended toward intraday highs at 0.7240 before US inflation concerns tapered gains. While markets remain largely USD bearish the promise of increased stimulus has heightened concerns inflation will extend beyond the Fed 2% target before years end, widening treasury yields and prompting some analyst to price in a tightening in the monetary policy setting. While the Fed has affirmed its commitment to an accommodative market setting these concerns are adding a floor under the USD and preventing the NZD from extending through last week’s high and 0.73.

Our attentions today turn to President-elect Joe Biden, his stimulus plan, and the market response. Crucial for direction will be treasury yields and inflation expectations.

Key Movers

The US dollar continued its see saw battle against major counterparts giving up Wednesday’s gains through trade on Thursday, as markets react to an uptick in domestic jobless claims and expectations for fiscal stimulus. 965,000 Americans filed for state benefits last week, the biggest weekly jobless claim since March and a stark reminder COVID-19’s impacts stretches well beyond the healthcare system. Sterling broke through resistance at 1.3670 to test a break above 1.37, while the euro recouped early losses and jumped back above 1.2150. Despite the correction the USD did find some support in widening Treasury yields and inflation expectations. Hopes for an increase in Fiscal support have heightened concerns inflationary pressures will run through the Fed 2% target in the latter half of the year, weighing on monetary policy and prompting some analysts to price in a tightening in policy conditions. As markets grapple with short term headwinds and medium term expectations for an economic rebound, our attentions turn to President-elect Joe Biden and part one of his economic plan for a greater insight into how quickly the American economy might bounce out of the political and pandemic driven recession.

Expected Ranges

NZD/USD: 0.7090 - 0.7300 ▲

NZD/EUR: 0.5880 - 0.5990 ▲

GBP/NZD: 1.8820 - 1.9080 ▼

NZD/AUD: 0.9250 - 0.9330 ▼

NZD/CAD: 0.9080 - 0.9220 ▲