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NZD forced lower amid shift in demand for risk

NZD - New Zealand Dollar

The New Zealand dollar gave up recent gains on Thursday shifting back below 0.72 US cents as investors appetite for risk soured. The NZD followed equity markets lower overnight following a proposal from President Joe Biden to almost double capital gains tax on wealthy individuals. While widely publicised as a key pillar of Biden's fiscal plan, the news seeming shocked investors or at the very least provided an excuse to divest of risk assets following the recent appreciation. Both the S&P500 and Nasdaq both lost over 1% while the NZD tested a break below 0.7150 touching intraday lows at 0.7147.

The NZD continues to fluctuate within a narrow range, struggling to mount any real upside momentum as investors lack conviction in the current environment. While the long-term outlook remains optimistic, near-term headwinds and delays to the global economic recovery have forced analysts to take a step back and assess conditions ahead of a catalyst to spark change in the underlying narrative. We anticipate the NZD will remain range bound through much of Q2 bouncing between 0.7000 and 0.7250.

Key Movers

The USD, JPY and CHF outperformed through trade on Thursday, buoyed by a souring appetite for risk and broader equity sell off. The USD DXY index advanced 0.3% after the dollar enjoyed gains against all major counterparts.

The euro slid back toward 1.20 giving up gains approaching 1.2070 after the ECB maintained its current program of monetary policy and offered no guidance on changes to its current pace of bond purchases. Markets expect the ECB will pare back the pace of QE come the start of H2 having front-loaded purchases in March. ECB president Lagarde pushed back against this narrative suggesting it was simply premature speculation.

Expected Ranges

NZD/USD: 0.7090 - 0.7230 ▼

NZD/EUR: 0.5890 - 0.6010 ▼

GBP/NZD: 1.9120 - 1.9420 ▼

NZD/AUD: 0.9250 - 0.9330 ▼

NZD/CAD: 0.8905 - 0.9010 ▼