Kiwi struggles to capitalise on risk recovery

Key Movers

Momentum behind the USD faltered through trade on Tuesday amid a recovery in risk assets and uptick across major currency counterparts. The dollar index retreated two tenths of a percent as investors chased equities, rates and commodities higher, recouping some of last week’s losses as risk sentiment regained some of the years early energy. Further downward pressure came following testimony from incoming treasury secretary Janet Yellen. Yellen stressed the Biden administration would not stand in the way of market-based dollar weakness, weighing on expectations fiscal stimulus may be employed to underpin the dollar. As the dollar dipped, the euro bounced off 6-week lows pushing back through 1.21 to mark intraday highs at 1.2140, while the Great British pound pushed back through 1.36 to touch 1.3635. The Japanese yen underperformed amid the risk on back drop, retreating 0.2% ahead of today’s BoJ Monetary Policy Statement and economic outlook report.Our attentions today turn to the US inauguration. Further signs of political instability may weigh on the risk recovery. With commentary from the Bank of Canada, Bank of England, Bank of Japan and European Central Bank all due before tomorrow’s open, monetary policy will remain in sharp focus. While we expect little change from the current policy platforms with signs growth will not rebound through H1 and a worsening short-term COVID 19 outlook, we are keenly attuned to any signal suggesting further loosening in financial conditions is forthcoming.