NZD rally stalls as investors take stock following blistering risk on recovery
Tuesday 7 September, 2021
Daily Currency Update
NZD - New Zealand Dollar
The New Zealand depreciated through trade on Monday, giving up last week’s high and drifting back below 0.7150. Price action across financial markets was largely muted amid a reduction in liquidity as the US and Canada enjoyed extended weekends in observance of Labor Day. Having enjoyed a remarkable post risk off recovery through the last two weeks investors took the opportunity to take stock, consolidating positions and absorbing profits. The NZD drifted of highs at 0.7160 to trade between 0.7127 and 0.7137 through the overnight session. The correction does little to alter our expectations for a risk led recovery and we anticipate the Kiwi will maintain upward momentum leading into the end of the year. The latest Pandemic outbreak appears to be under control with plans to reduce restrictions from level 3 to level 2 for all regions outside Auckland set to be announced tomorrow. Having squashed yet another outbreak markets are pricing in a swift recovery in economic activity, allowing the RBNZ to forge ahead with its commitment to neutral monetary policy. We expect the NZD will continue to track broader USD moves with the potential for some softness should the RBA proffer a dovish assessment.
Key MoversWith both the US and Canada on Holiday to start the new week price action across currency markets was largely muted through Monday. Labor day holiday’s meant quiet trading conditions and the sustained rally across global equities failed to permeate currency markets as the USD found some support following last week's softer than anticipated payroll print. The US has come under sustained downside pressure following Fed Chair Jerome Powell’s Jackson hole speech and last week's labour market miss eased fears linked to an early tightening of financial conditions. We expect the Fed will defer now any announcement surrounding the tapering of bond purchases into November with a view to reducing QE supports in December. Assuming the current recoupling of global growth optimism and positive sentiment continues we see scope for ongoing USD softness through the coming weeks and months.
With little of note on today’s macroeconomic ticket outside the RBA policy announcement our attentions turn to Thursday’s ECB policy update. With calls growing for the ECB to move toward a normalised and neutral policy platform we expect policy makers will begin tweaking the language surrounding QE purchases and move away from a policy biased toward further rate cuts. A hawkish assessment could afford the Euro some short term upside, but the slow path to normalisation when contrast against other major central banks should cap gains.
- NZD/USD: 0.7020 - 0.7180 ▼
- NZD/EUR: 0.5950 - 0.6030 ▼
- GBP/NZD: 1.9280 - 1.9450 ▲
- NZD/AUD: 0.9550 - 0.9640 ▼
- NZD/CAD: 0.8890 - 0.8970 ▼