Daily Currency Update

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Reflation theme pushes NZD to three year high

NZD - New Zealand Dollar

The New Zealand dollar surged to a three year high on Monday as reflation driven trade drove commodities and commodity currencies higher and the USD lower, while price action across treasury yields prompted some wild trading. NZ, AU and US rates all surged through Monday as prices across the curve steepened ahead of the RBNZ’s policy update tomorrow. 10-year rates closed up 13 basis points while 2-year swaps were up 3 points as reflation expectations dragged yields higher. The reflation theme also helped drive commodities higher, pushing whole milk powder futures up through 3750 USD. Having broken through resistance at 0.7250 the NZD marked new highs at 0.7345 before edging lower into this morning’s open. Given the pace and somewhat sporadic nature of yesterday’s price action we could see a moderation in NZD value, however sustained US weakness and ongoing NZD support will likely remain in play as long as the reflation theme continues to govern direction.

With little of note on today’s docket our attentions turn to tomorrow’s RBNZ policy announcement. Should the bank choose to follow the path set by its Australian counterparts and proffer a dovish surprise we could see the NZD drift back toward 0.7250.

Key Movers

The US dollar fell across the board Monday as the reflation theme drives a renewed demand for risk and commodity led assets. Despite an uptick across US treasury yields the world’s base currency was unable to keep pace with the Australian, NZ and Canadian rates market while Euro bond yields also enjoyed overnight gains, pushing nearer positive territory, marking highs at -0.28% before edging marginally lower into this morning’s open. The Euro pushed through 1.2150 and appeared set to break back through 1.22 before resistance at 1.2170 forestalled extended gains. The Great British Pound broke above 1.40 marking new highs at 1.4090 after UK PM Boris Johnson outlined a plan to reopen the economy. Johnson has adopted an incredibly laboured and cautious approach, with schools set to reopen on March 8th, while non-essential shops and services are to remain closed until April, with indoor hospitality shuttered until May. Despite some of restrictions likely to be in place until June, hopes the vaccine could drive a H2 recovery have helped bolster GBP expectations and we remain bullish Sterling will enjoy sustained upside as it leads its counterparts in vaccinating the population.

Expected Ranges

NZD/USD: 0.7250 - 0.7380 ▲

NZD/EUR: 0.5970 - 0.6050 ▲

GBP/NZD: 1.9080 - 1.9320 ▼

NZD/AUD: 0.9230 - 0.9305 ▼

NZD/CAD: 0.9180 - 0.9280 ▲