Kiwi outperforms as war avoided; for now

Daily Currency Update

The New Zealand dollar outperformed most major counterparts through trade on Tuesday, consolidating a break above 0.67 and testing 0.6750. Renewed demand for risk helped propel the NZD toward intraday highs at 0.6755. Markets adopted a more positive tone overnight, despite a broader deterioration in Russian/Ukrainian relations. With war seemingly imminent, investors appears buoyed by the fact war in Europe has not yet broken out. Market attentions remain affixed to ongoing developments in Europe, with price action likely to be whippy through the coming days and weeks Russia intentions are made clear. Domestically, our focus turns to the RBNZ policy meeting and rate statement. With inflation pressures rising we cannot discount a 50-basis point rate hike, however, expect the RBNZ will maintain a measured approach, issuing a 25-point rate hike while signalling additional rate adjustments will be needed to control inflationary pressures. Markets have already priced in rate hikes on a move to an OCR at 3%, while there is some pricing for a 50 basis point hike a 25 point hike in line with the majority of expectations, could prompt near term NZD softness as markets correct positions and discount the possibility of a future 50 point hike. We are watching resistance at 0.6750 and support at 0.6730.