RBNZ expected to play with a straight bat and not say anything that will reignite NZ$ strength

By Kymberly Martin


The NZD/USD has been the strongest performer amongst its peers over the past 24-hours, rising 1.3%. It sits around 0.7980 this morning.

The NZD/USD traded mostly sideways yesterday, but gained strength overnight against the backdrop of a broadly softer USD. In recent weeks the fate of the NZD has been almost entirely in the hands of global developments.

Today, some focus should return to solid domestic fundamentals as the RBNZ meets this morning.

That said, the RBNZ will likely see the 7% decline in the NZ TWI since April as a windfall and will be reticent to say anything today likely to reignite NZD strength.

Overall, it will likely play a fairly even hand not designed to influence market pricing.

The NZD also bounced relative to its European peers overnight. The NZD/GBP has returned to trade at 0.5080, and the NZD/EUR at 0.5970.

The NZD/AUD strengthened overnight taking the cross back up to 0.8400. There is plenty to drive volatility in the cross today with the RBNZ meeting and AU employment report due.

Resistance for the NZD/AUD is now eyed at the late May highs around 0.8460.

Ultimately, we see a stronger cross as NZ fundamentals prove stronger than their cross-Tasman counterparts. We maintain an end-year target of 0.8900.


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Over the past 24-hours the USD has been broadly weaker. The NZD and AUD have been the strongest performers.

Broad risk appetite remained fairly subdued overnight, as the Euro Stoxx 50 declined a further 0.6% and the S&P500 is currently down 0.7%.

Our risk appetite index (scale 0-100%) dropped below 60% for the first time since last December. The market continues to weigh the prospect of a gradual reduction in US monetary stimulus, and the implications for ‘yield’ assets in particular.

However, within currencies the USD index broadly underperformed, slipping from overnight highs around 81.30 to sit close to 80.00 this morning. This is the lowest level on the index since late February.

The EUR, GBP and JPY all crept a fraction higher relative to the USD.

Moves in the JPY were mostly about stabilisation after its biggest gain in three years the previous day.

Overnight, the USD/JPY attempted to rebound from 96.00 to 97.00 but could not sustain the move, sitting below the original level this morning.

The GBP was underpinned by the delivery of a robust UK labour market report for May. The unemployment rate remained at 7.8% as expected.

However, the number claiming jobseekers allowance fell by 8,600 in May, much better than market expectations.

There were also favourable revisions to the April data. This adds to the sense that recent UK data has recently been less disappointing than had become the norm. It suggests the Bank of England will be in no rush to change its current monetary policy settings.

The GBP/USD sits around 1.5680 this morning, its highest level since mid-February.

The AUD continues to fight its way back from the abyss. After yesterday rebounding from 0.9330 it now trades at 0.9490.

In early October 2011 when the AUD/USD rebounded from this exact level, it then catapulted to above 1.0700 by the end of November.

AU fundamentals no longer look so rosy, so we would not look for a repeat of this magnitude. However, it does illustrate the ability of the currency to bounce, particularly now that speculative AUD short positions have become extreme.

However, today’s AU employment report will provide a reality check for the AUD. We, along with the consensus expect a tick-up in the unemployment rate from the 5.5% recorded in April. This could take the rate to a new high for this cycle.

Tonight, the ECB publishes its monthly report and the US delivers retail sales data.

All its research is available here.

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