Daily Currency Update

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Kiwi bolstered by falling unemployment rate

NZD - New Zealand Dollar

The New Zealand dollar outperformed on Wednesday, buoyed by improved domestic labour market performance, rising commodity prices and general US dollar weakness. Quarterly labour market data printed ahead of expectations falling from 4.9 to 4.7% and while still short of the RBNZ maximum sustainable level is moving in the right direction and assuming a sustained uptick through Q2, Q3 and Q4 which could drive the RBNZ to raise the OCR next year. Price action on rate hike estimates jumped after the stronger print with a 25 basis point hike now firmly priced in by the end of next year, while there is growing momentum to suggest policymakers may move early with 50% of analysts now estimating a rate hike as early as June. The NZD jumped back through 0.72 US cents to touch intraday highs at 0.7210.

With little of note on today’s domestic ticket we expect the NZD will remain range-bound bouncing between 0.7150 and 0.7250.

Key Movers

The US Dollar Index fell through trade on Wednesday, testing key support lines at 91.20 amid softer than anticipated macroeconomic data sets. A contraction in activity across the services sector and weaker ADP non-farm payroll estimates dampened expectations the rapid rise in economic performance would prompt the Fed to bring forward monetary policy adjustments. Fed officials also offered little to suggest a policy change might be imminent. Members Mester and Clarida both toed the party line, affirming the FOMC’s commitment to accommodative monetary policy while directly dismissing calls to taper bond purchases.

Sterling continued its resurgence, edging marginally higher to break back above 1.39 while the euro tested a break below 1.20 before shifting higher into this morning open. A contraction in performance across services in France, Germany, Italy and Spain doused recent optimism the economy was primed for a rapid rebound in activity as restrictions ease.

Our attentions turn to tonight’s Bank of England policy meeting ahead of Friday’s non-farm payroll print, while increasing vaccine hesitancy in the US has seen the pace of immunisation slow, raising concerns around the future pace of recovery.

Expected Ranges

NZD/USD: 0.7150 - 0.7250 ▲

NZD/EUR: 0.5920 - 0.6050 ▲

GBP/NZD: 1.9120 - 1.9430 ▼

NZD/AUD: 0.9250 - 0.9350 ▲

NZD/CAD: 0.8750 - 0.8890 ▲