Daily Currency Update

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Kiwi outperforms all majors, recouping last weeks unexplained downturn.

NZD - New Zealand Dollar

The New Zealand dollar outperformed through trade on Monday, outpacing all major counterparts amid renewed demand for risk and broader USD weakness. Having tested lows at 0.7150 last week the NZD surged back through 0.72 to mark intraday highs at 0.7220. While the currency has struggled to break outside a narrow trading handle between 0.71 and 0.73 we retain our bullish expectations. The months early inflation concerns appear to have eased allowing a renewed appetite for risk, while New Zealand’s economic recovery remains ahead of schedule, in fact, fair value estimates suggest the currency continues to lag fundamentals and the macroeconomic backdrop. We continue to watch resistance at 0.7315 with a break above this handle potentially signaling a move toward year-to-date highs above 0.74. Our attentions remain with tomorrow’s RBNZ monetary policy and rate statements. While we expect few surprises there is scope to suggest policy makers may adopt a more optimistic tone and outline a plan to normalise monetary policy.

Key Movers

The US dollar gave up ground against all major counterparts as commodity currencies outperformed with the CAD and NOK bolstered by an uptick in oil prices and the Euro, JPY and GBP all enjoying modest gains. A correction in inflation concerns through the end of last week drove improvement in demand for risk as investors near term fears the economy will overheat and derail the long run recovery eased. The 10 year break even inflation rate fell 10 basis points last week while key FOMC and Fed officials affirmed their will to look through transitory inflation pressures. Three separated policy makers reiterated the Fed’s commitment to accommodative monetary policy assuaging any fears the FOMC may begin discussion around tapering bond purchases. The Euro pushed back through 1.22 while the Pound continues to test 1.42. Out attentions today turn to US consumer confidence data ahead of Thursday preliminary Q! GDP update and Friday’s all important PCE inflation measure.

Expected Ranges

NZD/USD: 00.7150 - 0.7280 ▲

NZD/EUR: 0.5850 - 0.5930 ▲

GBP/NZD: 1.9480 - 1.9730 ▼

NZD/AUD: 0.9250 - 0.9350 ▲

NZD/CAD: 0.8640 - 0.8730 ▲