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NZD struggle to break 0.7250 ahead of RBNZ policy meeting next week

NZD - New Zealand Dollar

The New Zealand dollar opens higher this morning having made another attempt 0.7250 before shifting back toward 0.72 US cents. With little news flow and limited macroeconomic data on hand the NZD maintained a narrow range, bouncing between 0.7215 and 0.7250 as investors weigh uncertainty created by the pandemic and soft data sets against long run expectations of economic recovery. While commodity prices and equities continue to push higher the risk correlation across currency markets has faded through 2021, narrowing ranges and limiting volatility. While NZD performance remains strongly tied to broader USD weakness, yet this correlation could fade in the lead up to the RBNZ policy meeting next week. While it is expected the RBNZ could lead major central banks in tightening monetary policy next year the risk of a dovish surprise is all to evident. The RBA, BoC and Riksbank have all shown a willingness to extend their own QE programs, perhaps forcing the RBNZ to follow suit as no one party wants to significantly lead a push to tighter financial conditions. While we expect NZ rates to outperform key counterparts through the medium to long term, near term ranges will likely remain contracted until a clear end to the pandemic is in sight.

Key Movers

The Great British Pound outperformed again on Monday, pushing through 1.39 for the first time in nearly 24 months as market focus moves from the long-held pressures of Brexit to expectations for economic recovery. The UK is leading the charge in vaccinating its citizenry with more than 15 million Britons receiving at least their first dose of COVID-19 vaccine. This expedited push has raised hopes the UK will be in a position to avoid further national lockdowns and re-open its domestic economy as early as summer May/June.

The USD remains under pressure drifting lower across the board, while the JPY was the weakest of major currencies. An increase in global rates has forced the JPY lower against the USD with the dollar extending back above 105 to 105.30.

With little of note on today's macroeconomic ticket we expect direction and ranges will remain narrow leading into Wednesday Core Retail Sales print and Friday’s Manufacturing and Services PMI data dump.

Expected Ranges

NZD/USD: 0.7180 - 0.7260 ▲

NZD/EUR: 0.5920 - 0.6010 ▲

GBP/NZD: 1.9080 - 1.9320 ▲

NZD/AUD: 0.9270 - 0.9360 ▼

NZD/CAD: 0.9080 - 0.9220 ▼