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Kiwi edges higher as risk demand improves ahead of RBNZ policy update

NZD - New Zealand Dollar

The New Zealand dollar advanced through trade on Tuesday, buoyed by a decline in US treasury yields on the back of a surprise uptick in US domestic inflation. Having tested supports at 0.70/05 as a risk-off mood permeated markets following reports Johnson and Johnson’s COVID-19 vaccine would be suspended from use in the US vaccination program, as regulators investigate a series of rare but severe cases of clotting, similar to those linked to the AstraZeneca vaccine. Touching intraday lows at 0.7003 the NZD rallied back through 0.7050 to touch intraday highs at 0.7055. A surprise uptick in US CPI inflation data helped drive US treasury yields lower spurring an uptick in risk demand and helping prop up commodity currencies.

We expect the NZD will remain range bound leading into this afternoon’s monetary policy review and RBNZ policy announcement. We anticipate policymakers will remain steadfast in their commitment to the current policy program, instead waiting for a sustained and material improvement across key inflation and growth markers.

Key Movers

The US dollar fell through trade on Tuesday, forced lower following a decline in treasury yields and an uptick in appetite for risk. The dollar index fell four tenths of a percent amid upside across most major counterparts. The euro pushed toward 1.1950, while the JPY neared a break below 109 and the GBP touched 1.3770. Despite the improved risk demand, the GBP struggled to make the most of broader USD weakness amid reports known inflation Hawk, Andy Haldane, will leave the Bank of England in June. Haldane has been an advocate for moving sooner to prevent an uptick in inflationary pressure and his departure will likely skew the MPC toward a more conservative and longer run, wait and see, approach. With little of note on today’s macroeconomic ticket we expect volatility across commodity markets will remain largely subdued ahead of Thursday's US retail sales print.

Expected Ranges

NZD/USD: 0.6990 - 0.7120 ▲

NZD/EUR: 0.5850 - 0.5930 ▲

GBP/NZD: 1.9380 - 1.9620 ▼

NZD/AUD: 0.9180 - 0.9280 ▲

NZD/CAD: 0.8790 - 0.8920 ▲