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Kiwi fails to hold onto fresh two-month highs amid mounting inflation concerns

NZD - New Zealand Dollar

The New Zealand dollar made a fresh two-month high Monday, extending beyond .73 to touch highs at 0.7305. A renewed demand for risk among a reinvigorated reflation trade narrative and higher commodity prices have emboldened investors to extend gains beyond recent narrow ranges. That said, a backdrop of inflation fears and stretched break even inflation rates prompted a correction through the overnight session, forcing the NZD back toward 0.7250. Inflation concerns coupled with rising bond yield prices will likely continue to drive uncertainty through the near term with rotation across equity markets likely spilling into currencies. We expect resistance on moves approaching 0.73/0.7315 to remain intact for now, with a break above this signaling a definitive bullish shift, opening the door for an extension back toward year to date highs. With little of note on today’s macroeconomic ticket our attentions turn to US CPI data Wednesday as a key measure of the current inflation pulse.

Key Movers

The US dollar underperformed through Monday, giving up gains across the board before mounting inflation fears and rising treasury yields prompted a correction across the board with the exception of the GBP. Sterling rallied through 1.41 and 1.4150 as investors move pass another key risk event, the Scottish elections. The Scottish National Party fell must one seat short of securing an outright majority, making it much harder the pro-independents to mount another referendum for independence. While a coalition with the Green party would afford the National Party the vote share needed the political and legal hurdles that need to be overcome mean any threat of secession is now some way off. Having broken above resistance at 1.40 we are now optimistic the positive outlook for the UK and its advanced immunisation schedule will drive strong gains for the GBP through the short-medium term.

Expected Ranges

NZD/USD: 0.7190 - 0.7315 ▲

NZD/EUR: 0.5950 - 0.6020 ▲

GBP/NZD: 1.9180 - 1.9620 ▲

NZD/AUD: 0.9240 - 0.9310 ▼

NZD/CAD: 0.8750 - 0.8850 ▼