NZD Dives On RBNZ Announcement, Recoils Amid Apparent Profit Taking

The RBNZ's monetary policy decision jolted NZD, as New Zealand's central bank boosted its LSAP scheme to NZ$100bn, more than expected by the markets, while extending the duration of the programme to Jun 2022. Despite the expected upgrades to economic forecasts, the central bank acknowledged that risks are skewed to the downside and said that unconventional policy tools, such as negative rates, are under "active preparation". The MPC showed lack of comfort with a strong NZD, noting that it moderates the impact of firmer commodity prices. The Kiwi dived in reaction to what was, on balance, a dovish MPS, but quickly pared losses, with a contact pointing to profit taking in AUD/NZD.

• NZD/USD printed a one-month low, as it probed the water under its 50-DMA, before recoiling from worst levels. Recovery seemed driven by a pullback in AUD/NZD, which returned to its opening levels.
• NZD had already traded on a softer footing ahead of the announcement, as New Zealand snapped its over 100-day long run without a single community transmission of Covid-19.
• USD topped the G10 pile, as precious metals continued to slide. DXY showed at a one-week high.
• This leaves us with USD & NZD sitting at the opposite ends of the G10 scoreboard, albeit the Kiwi has backed off extremes.
• Focus moves to UK GDP and monthly activity indicators, as well as U.S. & Swedish CPI data. Comments from Fed's Rosengren, Kaplan & Daly will also be closely watched.