NZD/USD on the front-foot leading into the RBNZ

• NZd has been a strong performer ahead of the RBNZ, however, it is vulnerable to a souring of risk appetite.
• RBNZ to signal a doubling of its QE program.

NZD/USD will be a focus this week as it homes in on the 0.62 handle ahead of the Reserve Bank of New Zealand interest rate decision on Wednesday and the Budget on Thursday.

The pair has continued within its northerly trajectory and it could find support during this week's RBNZ should the central bank confirm its commitment to holding rates steady for at least 12 months. The forward guidance will be crucial. "It could easily go higher – all it would take would be the maintenance of the RBNZ’s “OCR on hold for at least 12 months” guidance. But even if that were to happen, there is more easing coming, a strong TWI is not what we need right now, and the Kiwi is vulnerable to a souring of risk appetite," analysts at ANZ argued.  

We expect the RBNZ to signal a doubling of its QE program and unveil a fairly grim set of economic forecasts," analysts at ANZ Bank said. "The Budget will be a much more complicated affair. We anticipate that net government debt will eventually hit 40-50% of GDP, though a relatively optimistic set of growth forecasts would dampen the forecast ratios. See our preview here. Note that at this stage there is no lock-up planned for economists so our analysis will be released later than in previous years."

US unemployment highest rates since the Great Depression

Meanwhile, the US dollar may struggle in a negative environment since Friday's report showing how an eye-watering 20.5 million US workers lost their jobs in April. The unemployment rate has now tripled to 14.7%, the highest rates since the Great Depression.

May is likely to add more job losses regardless of the path of the virus, on top of an April that saw a decade’s worth of job-creation given up. Lower-wage labour in hospitality and retail bore the brunt. The US labour market is very flexible, for good and ill, shedding and adding jobs at a bewildering pace,

the analysts at ANZ explained. 

NZD/USD levels