Home Daily Commentaries Kiwi closes below 70 US cents ahead of looming RBNZ interest rate decision

Kiwi closes below 70 US cents ahead of looming RBNZ interest rate decision

Daily Currency Update

NZD - New Zealand Dollar

The New Zealand dollar could not keep its head above the psychological support levels of 70 US cents, hampered by a flight to risk aversion and a stronger greenback, closing half a cent lower from the weekly open and 0.73% lower on Friday to 0.6990.

With little domestically to take note of on Friday other than an increase in credit card spending due to a lift in lockdown levels, markets have started to shift its focus to Wednesday's all important Reserve Bank of New Zealand monthly interest rate decision where economists have fully priced in a 25 basis point increase at their latest Monetary Policy Meeting. With domestic inflation rampant, hitting an eleven-year high on the September quarter reading at 4.9% YOY, markets have already started pricing in the potential of a 50-basis point hike by the RBNZ. Interest rates could see 1% for the first time since February 2020.

The New Zealand dollar opens this morning at 0.7008 with the latest core retail sales number due for release this morning. We expect support levels to hold onto moves approaching 0.6960 while any upward push will likely meet resistance at 0.7040.

Key Movers

A fourth wave of COVID-19 in Europe sent markets scurrying back to safe haven assets as Austria went into lockdown measures for the unvaccinated and Germany could soon follow. Germany saw its highest single surge of COVID-19 infections, reporting 65,000 new cases dampening the EUR/USD, dropping 0.8% on the day to 1.1280 and a six year low against the Swiss franc.

The greenback remained bullish, supported by a more hawkish Federal Reserve, led by expectations that two interest rate hikes are now expected in 2022. The US Dollar Index (DXY) which measures the world's most traded currency against a basket of six currencies was 0.57% higher on Friday and hit 16-month highs of 96.23.

Elsewhere we saw another better than expected posting of UK data, with the release of retail sales. The reading beat expectations, coming in at 0.8% in October versus a forecast of 0.5%, the first monthly rise since April. Despite the reading, it was not enough to buck the strength of the US dollar, finishing 0.38% lower at 1.3442.

This week focuses on the Reserve Bank of New Zealand, where expectations are to raise interest rates by at least 25 basis points, followed by FOMC meeting minutes due for release on Thursday morning.

Expected Ranges

  • NZD/USD: 0.6960 - 0.7040 ▼
  • NZD/EUR: 0.9600 - 0.9700 ▲
  • GBP/NZD: 1.9000 - 1.9380 ▲
  • NZD/AUD: 0.6160 - 0.6230 ▲
  • NZD/CAD: 0.8780 - 0.8880 ▼