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Kiwi burst through 0.74 and 0.7450 as reflation trades drives currency to 3-year high

NZD - New Zealand Dollar

The New Zealand dollar outperformed major counterparts through trade on Wednesday, buoyed by the underlying reflation narrative and a clear RBNZ signal the pandemic led easing cycle is now over. While the RBNZ opted to maintain its current policy setting and proffered a largely expected dovish message markets looked to comments regarding future policy stimulus for direction. Policymakers admitted domestic economic performance and resilience afforded little scope or reason to extend stimulus measures and instead a program of patient micro-adjustments was more appropriate. Markets anticipate the bank will begin tightening rates from Q1 next year, a stark contrast with key counterparts. The NZD cruised through 0.74, marking fresh 3-year highs at 0.7450 and opens this morning buying 0.7442 US cents.

Our attentions today remain with the reflation narrative while RBNZ Governor Orr provides more context for the recent policy announcement as he addresses the Canterbury Chamber of commerce. We expect few surprises following yesterday's MPS announcement, however we are keenly attuned to any rhetoric aimed at talking down the recent NZD rally and elevated value.

Key Movers

The US dollar opens lower this morning as the global reflation trade continues to drive equities and commodity currency higher and Fed Chair Jerome Powell douses expectations for inflation. In an address to lawmakers. Powell affirmed the Fed’s recent rhetoric suggesting monetary stimulus will be in place for some time as inflation is not expected to hit the 2% average target for at least 3 years. The comments drove asset prices higher pushing the S&P 500 toward a 1% gain while stoking gains across US treasury yields and deflating demand for the USD.

The euro struggled to break resistance at 1.2170 and again appears to be range-bound between 1.21 and 1.22 while Sterling continued its forward advance, touching 1.42 before edging lower through the latter stages of the daily session to rest marginally below 1.4150. Attentions remain with the reflation narrative.

Expected Ranges

NZD/USD: 0.7320 - 0.7480 ▲

NZD/EUR: 0.5980 - 0.6150 ▲

GBP/NZD: 1.8920 - 1.9300 ▼

NZD/AUD: 0.9240 - 0.9370 ▲

NZD/CAD: 0.9210 - 0.9380 ▲