May 25, 2021 13:42:58

The kiwi has been in a subdued mood this month, indeed for several months, as the global reflation story plays out. Booming commodity prices have fallen back more recently and this seems to have affected NZD more than the other commodity-dollar currencies. NZD/USD has so far traded around 0.72 for the whole of this year, except for the moves above 0.74 in February and below 0.72 in March. The market will look to the RBNZ meeting overnight to possibly shake the pair out of its range.

Risks towards modest hawkish tilt?

While the RBNZ is expected to leave all policy settings unchanged and behave like most other major central banks (“above target inflation set to be temporary”), the balance of risks could point to a more optimistic outlook. This may in part be due to the dovish expectations already attached to this meeting where we get to see new economic forecasts.

Growth data has been weaker than expected but the labour market has remained robust and commodity prices across the time horizon have boosted the New Zealand terms of trade. On balance, the economic outlook has improved and with the recovery gaining traction, any hint of taper talk will be seized on by kiwi bulls.

NZD/USD long-term trend still higher

The trendline from the pandemic lows has held prices well this year with the dip below 0.70 to the year-to-date lows at 0.6943 in March being well supported by buyers. The pair looks to have bounced off this bullish trendline once again, with the 100-day moving average also acting as good support. Any bullish hints by the RBNZ would see the pair move higher and see prices push up towards 0.73 and the May highs at 0.7304 and January highs at 0.7315. The RSI has moved above 50 pointing to a pick-up in bullish momentum, having moved around this key level over the last few weeks. Of course, dollar weakness is a key driver in this pair so the possible (false) break in DXY is something to keep an eye on.

AUD/NZD sitting on key support

AUD/NZD also has a similar long-term trendline in play from the March lows of last year. The pair has been trading in a range over the last few weeks and is currently trading just above the trendline which is also on additional support just above 1.07 The bears have tried numerous times to break this 1.07 zone going back to the end of last month and the RSI and MACD have both turned south again. April lows at 1.0699 will be the last support but there is not much after this in the near-term until the February lows around 1.0640. The bar is high for the RBNZ to be overly dovish, but if this is the case, then the antipodean cross will bounce off 1.07 support once more and back in its range toward 1.08.