Kiwi steady as downside risk mounts
Thursday 12 March, 2020
Daily Currency UpdateNZD - New Zealand DollarThe New Zealand dollar remained relatively range bound through trade on Wednesday, pushing marginally higher on the day and holding just above 0.63 US cents. While moves across broader currency markets were largely muted, the US dollar gave up Tuesday’s bounce as investors again looked to dump equities and stocks in response to the US governments perceived lack of action when it comes to the fight against the Coronavirus. Having announced stimulus measures would be employed on Tuesday markets were hoping for a more detailed plan of commitment from President Trump and Congress on Wednesday and have so far been left wanting. The uncertainty sparked a fresh wave of panic, driving the S&P 500 and Dow lower and pushed US forward rates back below 0.80% to 0.75%. The shift in US forward points has helped prop up the NZD and add support to short term technical handles at 0.6280/0.63. The NZD however remains vulnerable to the broader risk off environment and a detailed stimulus plan and recovery across US equities, wherein rates are restored, and yields edge higher, could drive the NZD lower as normal fundamentals steer direction. The closer we edge toward a full-blown global recession the greater the downside risk for the NZD with medium and long term ranges skewed to the downside.
Key MoversThe US dollar fell through trade on Tuesday, following plunging equities and stocks lower as markets and investors responded to the White House’s poor response to the broader COVID 19 panic. Having announced fiscal stimulus would be delivered on Tuesday investors were hoping for a more detailed announcement as to what the package entails and where funding will be directed on Wednesday and have so far been left wanting. Broad based sentiment across market analysts suggests the government’s response to date has been lacking and has done little to calm markets and prevent further panic. The dollar fell sharply against the safe haven Yen and Swiss franc down 1% and 0.7% respectively while the dollar index gave up Tuesday’s gains. The Great British Pound enjoyed mixed fortunes after the Bank of England cut its benchmark interest rate by 50 basis points to 0.25% and the Johnson government issued a 30 billion pound stimulus package aimed as propping up the floundering economy. The coordinated response to the COVID 19 threat from both monetary and fiscal policy control centres lifted the Sterling off one week lows, marking intraday highs at 1.2970 before a consolidate push to haven assets forced a shift back toward 1.28. Cable currently swaps hands at 1.2813Attentions today turn to the European Central Bank and its monthly policy setting meeting. Investors are anticipating a string of policy changes and QE measures to fight the coronavirus slow down. President Lagarde reportedly spoke with EU leaders through trade on Wednesday, urging a coordinate response from Governments as well as the Central Bank, in a bid to ensure funding and liquidity remain available. With interest rates already below zero a cut in the benchmark interest rate in unlikely to proffer any real stimulatory response. Instead investors expect the ECB will increase the monthly rate of QE and announce another targeted reduction in lending conditions aimed as SME’s to prompt activity across the broader small business community.
- NZD/USD: 0.6210 - 0.6350 ▼
- NZD/EUR: 0.5480 - 0.5660 ▲
- GBP/NZD: 2.0280 - 2.0720 ▼
- NZD/AUD: 0.9540 - 0.9780 ▲
- NZD/CAD: 0.8450 - 0.8690 ▲