Daily Currency Update

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Kiwi recovers losses and re-enters familiar trading range

NZD - New Zealand Dollar

The New Zealand dollar offered little to excite investors on Monday as most market participants enjoyed the Queen’s birthday long weekend and seemed content in extending Friday’s recovery, pushing toward intraday highs at 0.7241. Having recovered last Thursday’s sell off the NZD slipped back into a familiar trading band, bouncing between 0.7190 and 0.7250 and seems unlikely to break ranges firmly maintained since March without a sustained shift in the underlying risk narrative. With little of note on the domestic macroeconomic docket this week our attentions turn offshore to two key risk events, the ECB policy meeting and US CPI data. Inflation concerns have eased since April’s bumper print and we are keenly attuned to any suggestion inflation pressures may be more than a transitory by product of pandemic induced supply constraints. With estimates suggesting year on year inflation could run as high as 5% an outperformance could well prompt another risk off run and correction in FOMC and Fed expectations.

Key Movers

The swift correction in USD fortunes extended through trade on Monday as the world’s base currency struggle to maintain the momentum enjoyed on Thursday in the lead up to Friday’s non-farm payroll print. The softer than anticipated payroll print and a sustained correction in US treasury yields forced the dollar index back toward multi year lows as the AUD and NZD led gains across majors. The GBP and Euro both outperformed through Monday with Sterling testing 1.42 again while the Euro fell agonizingly short of pushing back through 1.22. The Canadian dollar, while advancing against the USD, underperformed against other counterparts as local job’s data missed expectations. The poor print is attributed to the lockdown in Ontario and numbers are expected to bounce back next month, however they provide an interesting wrinkle ahead of this weeks Bank of Canada policy meeting. While we expect the BoC will maintain its current policy setting, it has adopted a more hawkish rhetoric in recent months as it works toward a rate adjustment in H2 2022. Alongside the Bank of Canada our attentions turn to US CPI data and the ECB policy meeting. There is some suggestion the ECB may announce an amendment in Bond purchases, having frontloaded buying early in the year. While we expect policy makers will maintain the current setting a shift in rhetoric could drive further Euro outperformance.

Expected Ranges

NZD/USD: 0.7170 - 0.7315 ▲

NZD/EUR: 0.5880 - 0.5960 ▲

GBP/NZD: 1.9450 - 1.9820 ▼

NZD/AUD: 0.9280 - 0.9404 ▼

NZD/CAD: 0.8630 - 0.8780 ▲