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  • Earlier on Tuesday, NZD/USD briefly went above 0.7000 for the first time since mid-2018, with sentiment boosted by news regarding the RBNZ.
  • However, amid a broad pick up in USD, the pair has slipped back, but remains supported above the 0.6950 mark.

Amid a broad pick up in USD, NZD/USD has pulled back from Monday European morning session highs of above the 0.7000 level, which incidentally is the highest the pair had been since June 2018. NZD/USD remains supported above 0.6950 for now and continues to trade with solid gains on the day of over 30 pips or 0.5%. However, NZD is no longer the best performing G10 currency, having been overtaken in recent trade by AUD and NOK amid a broad-based pick up in global commodities (i.e. metals and crude oil), and as the MSCI World Equity Index hit all-time highs.

NZD traders jumping the gun on the inclusion of house prices into RBNZ inflation remit

The New Zealand dollar was boosted overnight after the New Zealand government floated the idea of altering the RBNZ’s inflation remit to include inflation in house prices. Given that house price inflation has been significantly above consumer price inflation in recent years, its inclusion in the RBNZ’s overall inflation remit would mean that the bank would have less scope to ease policy (hence the NZD upside).

However, note that any decision on this is not final, with the NZ Finance Minister Grant Robertson currently “seeking advice” on the topic from the RBNZ (Robertson sent a letter to RBNZ Governor Adrian Orr asking for advice on the topic). Governor Orr’s advice is likely to be “no”, given that he responded to the news by commenting that the RBNZ “already gives consideration to asset prices and that monetary and financial policies alone cannot solve property issues”. Governor Orr speaks again at 22:00GMT following the release of the RBNZ’s bi-annual Financial Stability Report and might offer more insight on the topic.

Given RBNZ opposition to the idea, it might be jumping the gun a little to expect that house price inclusion in the RBNZ’s inflation remit is right around the corner. This might explain why NZD has slipped down the G10 rankings in recent trade, anyway.

In term’s of Tuesday’s release of the latest RBNZ Financial Stability report; Westpac comment that “the Reserve Bank’s six-monthly review of the financial system comes against a much more encouraging backdrop compared to May” with “economic activity has rebounded quickly after the Covid-19 lockdown, with the exception of travel and tourism.” The bank expects that the FSR to focus on the resurgence in the housing market and the growth in mortgage lending in particular, with lending having been spurred on by the rebounding economy, record low-interest rates, and the removal of limits on high loan-to-value ratio (LVR) lending in April.

NZD/USD briefly forays above long-term uptrend resistance

Earlier on Tuesday, prior to the broad pick up in USD that saw NZD/USD drop back towards 0.6950, the pair briefly managed to advance above a long-term uptrend linking the 10 June, 22, 23, 27, 28 and 31 July and 2 September highs. With the pair also breaching the psychologically important 0.7000 level for the first time in over two years, the door has been opened for a test of the next significant area of resistance around 0.7050 (the June 2018 highs).

To the downside, if the USD pick up can continue, the main area of support is all the way back down around the 0.6800 mark (the 2 and 17 September highs).

NZD/USD daily chart

NZD/USD

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