- NZD/USD bulls stay in charge as the RBNZ and Fed are played off in money markets.
- US dollar remains better offered despite recovery attempts post-Fed.
NZD/USD added around 0.7% on Monday and travelled from a low of 0.7103 to score a high of 0.7176 as it farse as one of the most reliable of the higher-yielding currencies with respect to the Reserve Bank of New Zealand. The US dollar was also a contributing factor given its 0.17% slide across a number of currencies on Monday, as measured by the DXY index.
The US dollar dipped on Monday after hitting 15-month highs on Friday following strong US Nonfarm Payrolls data. The report showed the US employment increased more than expected in October as the headwind from the surge in COVID-19 infections over the summer subsided. This was an encouraging signal that economic activity will be regaining momentum in the fourth quarter.
However, the data was not enough to steer investors' minds away from the fact that central banks are not as hawkish as the market was positioning for. This was evident across three central banks, the Reserve Bank of Australia, the Federal Reserve and the Bank of England. All three banks last week leaned on the side of patience with regards to timings of interest rate hikes and their transitory mantra with regard to inflation pressures.
Fed vs RBNZ in play
On Wednesday the Fed stuck to its view that current high inflation is expected to be transitory and said it would start trimming its massive bond-buying program this month. However, maximum employment was not yet achieved so the central bank will want to see more job growth before raising interest rates. This led to a fall in US yields and the greenback.
By contrast, short end NZ interest rate markets remain buoyant, with 66bps of hikes priced in over the next two meetings which are helping the NZD. ''If the RBNZ is of a mind to hike by 50bps, now’s the time, but that still seems incongruous with the uncertain global backdrop and cautious tone of other central banks,'' analysts at ANZ Bank said in a note on Tuesday. 'Still, until we know the outcome, markets will price in the risk.''
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