NZD/USD fills the gap and back on the front foot

  • Kiwi started out the week gapping to the downside and then bouncing back to trade 0.16% higher.
  • The Federal Reserve will cut benchmark rates this week.

Last week’s underperformer, NZD, that fell from 0.6410 to 0.6372 on Friday has started out the week gapping to the downside and then bouncing back to trade 0.16% higher at 0.6387 at the time of writing having travelled between a low of 0.6368 and a high of 0.6389.

Weekend events lead to a risk-off start to the week following Saudi Arabia suffering a drone attack on the world’s biggest crude-processing facility in Abqaiq. “The kingdom’s second-biggest oil field in Khurais that saw more than 50% of crude and natural gas production taken offline – This represents more than 5% of global crude production,” analysts at Westpac explained:

“Trump has announced that he has authorised the release from the strategic petroleum reserve “if needed”; and going into the major event, global markets were well supplied with crude and reserves were high, so even if the facilities are not back to full capacity for much of the week, we should not see major supply disruptions. However, given the ease with which Houthi rebels managed to inflict this damage, and the reaction from Pompeo over the weekend means that markets were clearly not correctly priced for geopolitical risks. As such, it is likely that we see markets move to price a risk premium into markets.”

Fed in focus

Meanwhile, yields will be a key focus this week with the Federal Reserve interest rate decision while market pricing for RBNZ is for 3bp of easing on 25 September, with a terminal rate of 0.64%. 

The Federal Reserve will cut benchmark rates this week, the question is by how much. “We are therefore calling for a 25-bps cut on Wednesday to be followed by another similarly-sized move before the end of the year,” analysts at NBF Economics and Strategy explained:

“Reinforcing our view is the fact that, in his final public address before the Fed’s meeting, Chairman Powell painted a rather upbeat picture of the economy, thereby opting to pass on his last chance to gear market expectations towards a large cut. The dot plot and participants’ economic projections will be updated at the meeting.”

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