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Kiwi jumps back through 0.72 as inflation expectations gather pace

NZD - New Zealand Dollar

The New Zealand dollar pushed through 0.72 US cents Monday, buoyed by reflationary expectations, and hopes US fiscal stimulus and vaccine roll outs will drive a H2 global economic recovery. Having tracked sideways through much of the domestic session the NZD bounced off 0.7180 to touch intraday highs at 0.7230, a cent higher than its Friday close. Having ignored last weeks dour US non-farm payroll print the market has begun pricing in a greater risk of inflation and financial instability within the US.

While there is little of note on the macroeconomic docket, domestic inflation expectations could afford some insight into future monetary policy. Growing price pressures coupled with rapidly rising house prices may force the RBNZ to consider raising rates ahead of schedule.

Key Movers

The US dollars mini resurgence appears over with the dollar index drifting lower through trade on Monday, dampened by expectations of rapid inflation, weakness across the labour market, concerns for a burgeoning twin deficit and a shift back toward a risk positive narrative. The dollar lost three quarters of a percent, when measured against a basket of currencies, driven by losses against commodity currencies and an uptick in the Euro. The Euro pushed back through 1.20 following reports former ECB president Mario Draghi was close to forming a coalition government in Italy, ending a period of political uncertainty and instability. Market focus has again shifted away from short-term headwinds and is instead focused on an H2 recovery. With vaccine rollouts gathering pace and record stimulus expected to bolster and foster a boom in consumer spending fears inflationary pressures will grow rapidly are weighing on the dollar. While we expect the dollar will continue to bounce off 3 year lows through the short term, there is still a bearish undercurrent dragging the world’s base unit lower, with wholesale gains unlikely until the wider narrative adopts a permanent shift.

Expected Ranges

NZD/USD: 0.7080 - 0.7250 ▲

NZD/EUR: 0.5950 - 0.6020 ▲

GBP/NZD: 1.8920 - 1.9180 ▼

NZD/AUD: 0.9330 - 0.9450 ▲

NZD/CAD: 0.9150 - 0.9250 ▲