NZD outperforms hitting 5-week high amid weaker euro

Daily Currency Update

Having enjoyed a sustained period of recovery through the last five days the NZD tracked sideways through much of Thursday, as markets take pause to re-assess future central bank policy expectations. After tracking above US$0.5850 and marking 5-week highs at US$0.5870, the NZD met moderate selling pressure leading into the ECB policy update before finding support and settling marginally above US$0.5820. As anticipated, the ECB lifted rates by 75 basis points, however the accompanying statement adopted a more dovish tone when compared with last months hawkish offering, affirming the emerging market narrative of central bank pivot. There is growing belief major central banks have passed the point of “peak hawkishness” and as such, the pace of future rate hikes will likely be much more data dependent. Global rates fell sharply overnight and risk assets enjoyed sustained support. While the NZD failed to extend beyond resistance at US$0.5870, there is now scope to suggest a broader and longer run recovery is at hand. Our attentions turn to the Bank of Japan’s policy update. While we expect policy makers will retain the current policy setting, there is a growing possibility BoJ governor Kuroda could signal a possible shift in policy framework as underlying inflation pressures gather momentum. A shift in BoJ policy will likely drive a swift correction in USD/JPY, which could spill over into other major pairs and accelerate an NZD upturn.