NZD/USD bulls run out of air ahead of RBNZ this week

• NZD/USD stalling ahead of 0.62 handle. 
• RBNZ's QE is expected to be roughly doubled.

NZD/USD has been recovering from the March lows and has been targetting the 0.62 handle. However, in recent trade, the cross has been running into supply as the US dollar firms in the face of nations attempting to relax lockdown measures despite the health risks. 

For New Zealand, it did well on the scorecard when it came to cases of COVID-19. However, to do so well, the nation suffered one of the earliest and most stringent lockdowns in response. The total number of cases in New Zealand is just 1,147, while total deaths are 21.

The economy, however, has not faired well and yesterday, the Prime Minister announced that New Zealand will be transitioning to Alert Level 2 on Thursday 14 May which will likely lift spirits in the business community. This makes things a big week for the bird. We have the Reserve Bank New Zealand's MPS on Wednesday and the Budget is on Thursday.

RBNZ needs to do more

Markets know that the RBNZ needs to do more. QE is expected to be roughly doubled. Analysts at ANZ Bank explained that they expect "NZGB issuance for 2020/21 to be lifted to a record $45bn pace, but the impact of this supply will be more than offset by a doubling of the QE programme to $60bn."

QE has and will remain large enough to absorb all NZGB issuance through until the middle of next year, keeping the NZGB yield curve low and flat. Buoyant markets have also helped keep the NZD elevated, and it may snap higher if the RBNZ maintains its forward guidance ruling out OCR cuts this year. However, risks are tilted towards more easing in time and the NZD remains sensitive to global risk appetite. Those are its Achilles heels,

– the analysts at ANZ explained. 

NZD/USD levels

Key resistance at 0.6150/70 has been a stumbling block for the bulls. As the USD rebounds on paring back of negative Fed Funds rate expectations, the downside could be here to stay, especially should trade wars flare-up to any meaningful degree. However, on the upside prospects, it may only take the RBNZ keeping its “OCR on hold for at least 12 months” guidance to lift the currency. 0.6200 guards a run back to 0.6380 and 11th Feb lows.