Kiwi Pops Higher, Implied Vol Climbs Ahead Of RBNZ Monetary Policy Review

NZD/USD found poise in London hours Tuesday as the greenback moderated its recent gains, with BBDXY pulling back from fresh cycle highs. The U.S. dollar went offered on the back of defence of parity in EUR/USD, which is both a key psychological level and the base of a bear channel. Headline flow out of New Zealand provided little in the way of notable catalysts.

• The rate firmed despite unfavourable cross-asset dynamics. U.S. equity benchmarks underperformed and the VIX index jumped, while Bloomberg Commodity Index retreated, with participants cautious ahead of the release of U.S. CPI data on Wednesday.
• NZD/USD implied volatility has climbed across the curve ahead of a busy Wednesday that will see the announcement of the RBNZ's rate decision and the release of aforesaid U.S. CPI report. 1-week tenor showed at its highest point since Jun 15 on Tuesday, with a notable jump seen in overnight implied volatility.
• The Reserve Bank is widely expected to raise the Overnight Cash Rate by 50bp (see our preview), taking it well above the mean estimate of its neutral level of ~2%. It is an interim (non-MPS) monetary policy review, so we will only get a short statement and summary record of the meeting, without a press conference or updated forecasts.
• The latest REINZ report published this morning showed an uptick in the median house price, but market activity was particularly subdued, with sales volume tumbling and days to sell rising.
• Spot NZD/USD trades at $0.6127, little changed on the day. Bulls eye Jul 8 high of $0.6207 for initial resistance and a break here would expose Jul 4 high of $0.6252. Bears need a retreat under Jul 11 low of $0.6097 to confirm the strength of underlying downtrend, before targeting the psychologically significant $0.6000 figure.