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Kiwi drops below 72 US cents – RBNZ meeting this Wednesday

NZD - New Zealand Dollar

It was a lacklustre day of trading for the New Zealand dollar, trading in a tight 20-point range during domestic session and dropping to 0.7180 on close. Price action occurred during the offshore session into the weekly close as the USD finished strongly. A positive United States Manufacturing and Services PMI reading was the main catalyst causing the Kiwi to finish 0.55% lower to 0.7160.

Markets will be eyeing in on the latest RBNZ interest rate decision on Wednesday and more importantly future guidance on potential hikes and inflationary pressures in the Monetary Policy Statement.

The New Zealand dollar opens this morning at 0.7165. We expect support levels to hold onto moves approaching 0.7130, while any upward push will likely meet resistance at 0.7210.

Key Movers

U.S. 10-year Treasury yields were basically unchanged on Friday moving to 1.63%. The US Dollar Index (DXY) was a solid mover higher by 0.3%, closing at 90.03 following an intraday day high of 90.15. The greenback was supported by the positive release of Manufacturing and Services PMI, both beating expectations for the month. Private sector firms noted strong expansion in business activity, fueling an increase in inflation as the average price of goods and services rapidly increase.

A raft of Flash Manufacturing and Services PMI were also released in Europe, where the region has also experienced a surge in demand for goods and services, growing at its fastest pace in three years. Concerns globally re a surge in inflation were dismissed by the European Central Bank President Christine Lagarde, noting it was a temporary shift higher following the fewer constraints due to Covid-19. Despite the strong release, EUR/USD finished 0.38% lower (1.2180) and the GBP/USD also declined 0.34% to 1.4140 due to greenback strength.

The week ahead opens with several public holidays in Europe (Germany, France, Switzerland). The main central bank action occurs in New Zealand where the RBNZ meets on Wednesday for their official cash rate decision. In the United States, investors focus their attention to GDP results for the quarter and weekly unemployment claims.

Expected Ranges

NZD/USD: 0.7130 - 0.7210 ▼

NZD/AUD: 0.9250 - 0.9310 ▲

GBP/NZD: 1.9550 - 1.9850 ▲

NZD/EUR: 0.5860 - 0.5910 ▼

NZD/CAD: 0.8600 - 0.8700 ▼