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Kiwi enjoys bump after Bank of Canada brings forward rate hike expectations

NZD - New Zealand Dollar

The New Zealand dollar pushed back through 0.72 US cents amid a bounce in risk sentiment and expectations interest rates may normalise ahead of schedule. Having largely ignored domestic CPI data and maintaining a narrow range through much of the domestic session, the NZD surged through 0.72 to touch session highs at 0.7220, after the Bank of Canada announced its plans to reduce its current bond buying program and begin raising interest rates in H2 of 2022. While markets had largely expected the BoC to announce a tapering of weekly bond purchases, analysts had not priced in an update to interest rate expectations, prompting a quick adjustment to monetary policy expectations and a 1% surge in the value of the CAD, which in turn dragged the AUD and NZD higher.

Attentions now turn to the European Central Bank for further monetary policy guidance. With little expectation policy makers will stray from the current narrative, we anticipate the NZD will continue to face selling pressure as investors sell into rallies, while support above 0.7050/0.71 should hold as markets buy the dip.

Key Movers

The Canadian dollar outstripped major counterparts Wednesday, after the Bank of Canada surprised markets in announcing it expects conditions to be right for an interest rate hike in H2 2022. While analysts had already begun pricing in monetary policy normalisation, the somewhat hawkish commentary drove investors to bump up interest rate expectations. The Canadian dollar advanced 1% on the day climbing off lows near 0.7910, to mark new highs at 0.8030.

Outside the CAD there was very little movement across the other major units. The GBP maintained a narrow handle bouncing between 1.3890 and 1.3950, while the euro pushed back against attempts to force it back below 1.20, bouncing between 1.20 and 1.2040.

Attentions now turn to the ECB monetary policy statement. We expect policy makers will maintain the current policy setting and defer any decision to correct the pace of bond purchases until June. A surprise correction and paring back of bond purchases, having frontloaded in March, could provide the catalyst for price action across currency markets.

Expected Ranges

NZD/USD: 0.7080 - 0.7230 ▲

NZD/EUR: 0.5920 - 0.6030 ▲

GBP/NZD: 1.9220 - 1.9450 ▼

NZD/AUD: 0.9250 - 0.9350 ▲

NZD/CAD: 0.8970 - 0.9080 ▼