Kiwi unmoved as US fiscal stimulus talks dominate short term direction
Tuesday 11 August, 2020
Daily Currency UpdateThe New Zealand dollar was range bound throughout trade on Monday, edging marginally lower in what was a largely uneventful start to the week. With little of note on the macroeconomic calendar and an absence of headline drivers the NZD bounced between 0.6580 and 0.6610. Markets ignored a dip in business confidence and activity following the release of ANZ’s business conditions survey. It appears businesses remain wary of shifting conditions and are holding back large-scale investments until things improve. Despite holding firm against the USD the NZD slipped below 0.92 against the AUD. Its lowest level in 2 months. Markets have ignored the 2nd wave of infections in Victoria and as case numbers appear to be turning amid stricter lockdown protocol its unlikely a long and sustained outbreak will prompt a recovery in NZD/AUD fortunes. We anticipate a consolidation across currency markets through the week/weeks ahead with the NZD struggling to extend beyond resistance. Increased volatility through July should ease for now, however risk demand will still play a pivotal role in broader direction. With the focus on fundamentals increasing we expect the NZD could benefit from sustained upward run against the USD as investors look for other asset corridors amid concerns for the US economic recovery.
Key MoversThe US dollar crept higher through trade on Monday, buoyed by Friday’s better than expected Non-farm payroll print and the introduction of new stimulus measures. While talks between democrats and republicans broke down and a full scale fiscal relief package could was not brokered, President Trump, signed an executive order to reinstate unemployment benefits, a stop gap measure until talks resume. The breakdown in negotiations leaves the door open to longer term economic consequences but with talks resuming the market appears confident a deal will be brokered in the short term. If a compromise cannot be reached this week the Dollar may come under sustained downward pressure as markets reward those with aggressive COVID-19 relief plans. The Euro edged lower amid the US upturn, slipping back below 1.18. Having enjoyed a sharp reversal in fortunes throughout June/July the single currency appears poised to push toward and beyond 1.20 before the end of the year. While expect a consolidation across currency markets through the coming week/weeks the long-term outlook remains intact with positive risk sentiment driving direction. The Pound crept higher up 0.3% against the dollar but still short of last weeks 5 month high at 1.3185. There remains scope for further GBP upside as improvements in underlying data sets help underpin the recovery off June lows. That said, investors appear reluctant in extending the squeeze on shorts beyond 1.32 at present with some resistance forming. Amid a slew on uncertainty we expect Sterling will enjoy ongoing volatility as Brexit concerns and a sluggish recovery battle broad based US weakness and a shift in underlying market drivers/fundamentals.
- NZD/USD: 0.6520 - 0.6640 ▼
- NZD/EUR: 0.5550 - 0.5680 ▲
- GBP/NZD: 1.9320 - 1.9780 ▲
- NZD/AUD: 0.9160 - 0.9280 ▼
- NZD/CAD: 0.8720 - 0.8850 ▼