Kiwi steady in face of looming global energy crisis

Daily Currency Update

NZD - New Zealand Dollar

The New Zealand dollar crept higher through trade on Monday, up 0.3% amid a broadly weaker USD. Despite a fall across global equities and rising concerns a global energy crisis will derail the pandemic recovery and global growth outlook. The NZD consolidated last weeks late gains, extending beyond 0.6950 to mark intraday highs at 0.6965. The NZD has struggled through recent months to extend beyond resistance at 0.7090/0.7100. With near term headwinds expected to remain in play through the foreseeable future we anticipate upside momentum will continue to be capped. Adding further pressure to the NZD are rising domestic COVID 19 case numbers. The 7-day moving average is now at its highest point in four weeks and appears unlikely to turn lower in the coming days. Auckland remains under level 3 restrictions with no further announcements made about easing restrictions. It appears the lockdown will be in place for much longer than first anticipated, potentially acting as a handbrake on what was an overheated domestic economy. The lockdowns have prompted a significant correction in RBNZ rate hike pricing with the Overnight Index Swap down at its lowest level in six weeks. While we still expect the RBNZ will raise rates on Wednesday, the likelihood of a 50-basis point hike has all but evaporated and we are more likely to see a 25point hike. The correction in yield expectations has exacerbated recent NZD weakness and we are keenly attuned to tomorrow’s policy update for further guidance and direction.