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Kiwi outperforms as IMF upgrades growth forecast

NZD - New Zealand Dollar

The New Zealand dollar outperformed most counterparts through trade on Tuesday despite a nervous start through the domestic session. Commentary from the People’s Bank of China set Australasian stocks and global equities lower and forced the NZD toward intraday lows below 0.7170 before an upwelling in sentiment drove the currency toward fresh highs. The NZD led gains across pro-cyclical and commodity led currencies after the IMF upgraded its forecasts for global growth from 5.2% to 5.5%. While the world remains ensconced by the pandemic, vaccines and fiscal stimulus are expected to promote a return to normality through the second half of the year, fuelling optimism and allowing markets and the IMF to discount short-term headwinds.

With little of note on today’s domestic docket, our attentions turn to the Federal Reserve and Australian CPI data for direction. The Fed is expected to affirm its commitment to accommodative monetary policy while Australian CPI is expected to remain well below the RBA’s target band. Having reversed the year’s early downtrend through recent days, a poor inflation print could help the NZD extend its recovery against its antipodean cousin and extend beyond resistance at 0.9360.

Key Movers

While moves across currency markets were largely muted, the US dollar edged marginally lower on the day, down two tenths of a percent when valued against a basket of key counterparts. Equities were broadly flat and bond yields offered little incentive to shift the current narrative. Instead, the IMF upgrade to global growth helped fuel demand for traditional risk linked currencies while the GBP found support in better than anticipated labour market data. Sterling held onto gains above 1.37 after employment data showed the unemployment rate expanded at a slower rate than first anticipated while average earnings increased and the number of people claiming unemployment benefits fell well short of initial estimates. With the UK crippled by this second wave and national lockdown, the surprise upside provides some hope for a H2 rebound. That said, 88,000 more Brits are now out of work and the country passed a grim milestone on Tuesday as the number of COVID-19 related fatalities pushed through 100,000, a stark reminder of just how far we have to go before a return to normal.

Expected Ranges

NZD/USD: 0.7170 - 0.7280 ▲

NZD/EUR: 0.5890 - 0.5980 ▲

GBP/NZD: 1.8880 - 1.9020 ▼

NZD/AUD: 0.9305 - 0.9410 ▲

NZD/CAD: 0.9130 - 0.9230 ▲