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Kiwi outperforms- testing 0.72 US cents

NZD - New Zealand Dollar

The New Zealand dollar outperformed most majors overnight reversing recent weakness and extending toward 0.72 US cents. A modest correction in US treasury yields, improvement across equity markets and a dip in US CPI data helped fuel dollar weakness driving the NZD toward an all to familiar resistance point. Having staved off attempts to extend the recent downside below 0.71, the NZD is now range bound fluctuating between 0.71 and 0.72 US cents.

The New Zealand dollar remains vulnerable to swings in the current risk narrative with equity and treasury performance being good indicators of market risk aversion. With little of note on today’s macroeconomic ticket our attentions turn to a 30-year US government bond auction. A depreciation in demand or a dip in yields toward 2% could indicate a broader push back toward equity markets, possibly fostering NZD upside.

Key Movers

The US dollar fell through trade on Wednesday amid a weaker than expected CPI print and a decline in 2-, 5- and 10-year treasury yields. Month-on-month inflation fell short of expectations in February, marking a third consecutive monthly miss; easing concerns that fiscal stimulus and a speedy rebound will create untenable inflationary pressure. That said, the heightened COVID-19 concerns and regional lockdowns still plague the recovery and a true signal of price performance most likely won’t be seen until April or May.

The euro extended beyond 1.19 to touch intraday highs at 1.1925 while the GBP touched highs at 1.3930 and the JPY forced the dollar off highs nearing 109. Our attentions now turn to the ECB’s monthly policy meeting. We expect no change from the recent communique, although we are keeping a close eye on commentary surrounding the recent pace of bond purchases. The ECB has slowed the pace of bond purchases recently despite upward pressure on prices. Investors will be keenly attuned to commentary from President Lagarde as she explains the bank's rationale behind recent action. Her response could prompt euro volatility.

Expected Ranges

NZD/USD: 0.7100 - 0.7220 ▲

NZD/EUR: 0.5980 - 0.6120 ▼

GBP/NZD: 1.9220 - 1.9480 ▼

NZD/AUD: 0.9270 - 0.9330 ▼

NZD/CAD: 0.8980 - 0.9120 ▲