Daily Currency Update

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All eyes on RBNZ. Can they control market expectations?

NZD - New Zealand Dollar

The New Zealand dollar maintained a narrow trading band through trade on Tuesday, again struggling to extend beyond 0.7250. With little of headline news flow on hand to drive direction, investors appeared content in sidelining bets ahead of today’s RBNZ policy announcement. While we anticipate policymakers will opt to maintain the current monetary policy platform, there is scope to suggest a softening in dovish rhetoric is warranted. The domestic economic recovery has outpaced estimates allowing inflation and employment to move closer to RBNZ targets while the global backdrop is stronger than expected and expansive fiscal policy should help underpin the recovery moving forward. A hawkish surprise could drive a sharp NZD uptick and presents a challenge to the RBNZ. How do they respond to current conditions without spooking the market into driving both the currency and domestic rates higher? We are watching resistance at 0.7250 and 0.7315 as key technical levels.

Key Movers

Price action across major currencies was absent Tuesday with all major pairs maintaining a narrow range against the USD despite sustained dovish commentary from the Federal Reserve and a dip in 10 year treasury rates. Commentary from key FOMC officials failed to stray from party line, and only served to dampen expectations the Fed will move to adjust monetary policy in the face of risking inflation pressures. US 10 year treasury rates fell 3 basis points to 1.56% their lowest handle in months and the USD struggled to move off multi-year lows.

The Chinese yuan marked its highest level in almost 3 years as the USD weakened towards 6.40. While the currency has yet to break back through the high enjoyed in January and February the PBOC seem content in allowing the fixing rate to follow adjustments in market fundamentals which could allow for more CNY strength in the weeks and months ahead.

Attentions turn to today’s RBNZ policy meeting and rate statement ahead of tomorrow’s Prelim GDP data and Friday’s PCE index inflation print.

Expected Ranges

NZD/USD: 0.7150 - 0.7315 ▲

NZD/EUR: 0.5870 - 0.5950 ▼

GBP/NZD: 1.9220 - 1.9680 ▼

NZD/AUD: 0.9250 - 0.9350 ▲

NZD/CAD: 0.8640 - 0.8750 ▲