Daily Currency Update

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Kiwi holds onto 0.72 despite climbing US treasury yields

NZD - New Zealand Dollar

The New Zealand dollar underperformed through trade on Tuesday yet held onto gains above 0.72 US cents. In the absence of any headline macroeconomic data investors appeared reluctant to extend Friday’s risk-on move, instead selling into the rally as short-term pandemic led headwinds dampen market demand for risk and US 10-year treasury yields climbed higher. Having touched intraday highs at 0.7237 the NZD fell steadily before bouncing off supports at 0.7205. While the reflation narrative continues to underpin currency moves, volatility throughout April remains largely muted as a lack of conviction across financial markets has driven analyst and traders to maintain a narrowing range.

With little of note on hand today our attentions turn to the FOMC tomorrow. While we expect little change in Fed messaging, an improved growth outlook and sustained rapid vaccine roll out may prompt a small shift in the overwhelmingly dovish narrative.

Key Movers

Currency markets enjoyed only modest price action through trade on Tuesday with volatility across the GBP, EUR, CAD and CHF barely registering any change in value. The dollar index has edged marginally higher as US treasury yields enjoyed a boost on the back of increasing commodity prices. Ten-year treasury yields advanced 5 basis points, pushing back through 1.6% in a bid to move back in line with the break even inflation point. Having forced the NZD and AUD lower, the USD enjoyed small gains against the yen following the Bank of Japan’s policy announcement. The BoJ opted to maintain the current policy setting and further downgraded its inflation forecast. The correction in forecasts means the BoJ will fail to meet its 2% inflation target after almost a decade of monetary policy led stimulus geared to drive price action. The futility of the BoJ’s efforts perhaps speaks to a broader shift in underlying market forces and structural disinflation which could make it difficult for central banks and monetary policy to manipulate prices moving forward, subsequently making it difficult to argue for near term interest rate adjustment. Our attentions today turn to the FOMC and Federal reserves latest policy update.

Expected Ranges

NZD/USD: 0.7180 - 0.7250 ▼

NZD/EUR: 0.5890 - 0.6010 ▼

GBP/NZD: 1.9080 - 1.9320 ▲

NZD/AUD: 0.9220 - 0.9320 ▲

NZD/CAD: 0.8890 - 0.8970 ▼