Kiwi upturn continues as Democrats wrest control of the Senate
Thursday 7 January, 2021
Daily Currency UpdateThe New Zealand dollar extend recent gains through trade on Wednesday, buoyed by broader US dollar weakness in the wake of the Georgia Senate race. Reports Democrats appeared likely to win both races after Raphael Warnock beat Republican incumbent Kelly Loeffler and Jon Ossoff appeared likely to prevail over David Perdue cleared the way for a deeper USD correction, allowing the NZD to extend toward 3-year highs at 0.7250. The prospect of increased fiscal stimulus and a faster global economic recovery coupled with increased trade and budget deficit expectations and a falling bond market prompted investors to chase risk assets allowing the NZD to hold onto gains even as the USD looked to claw back losses late in the session. New Zealand, along with its antipodean counterparty remains the only G10 country to largely free itself from the constraints of COVID-19. Having effectively eradicated the virus domestically, expectations for economic performance and monetary policy intervention have shifted significantly through the last 2 months allowing the NZD to enjoy a sustained upward trajectory. While there is scope for a break in the recent US downturn, medium-term forecasts remain bullish and our attentions turn now to resistance at 0.73.
Key MoversThe US dollar tested three-year lows through trade on Wednesday as Democrats appeared on the cusp of winning both senate seats in Georgia and wresting control of the house and senate, paving the way for increased stimulus and deficit. The dollar index hits its lowest level since March 2018 and looks poised to break below 89 having touched 89.206. The dollar then managed to claw back some of the day’s losses as demand for risk assets faltered following reports protesters in Washington D.C had stormed the capital in a last ditch attempt to overrun the confirmation and certification of election results. The Euro having eyed a move above 1.2350 slipped back to 1.2310 while Sterling shifted off levels approaching 1.37 to slip back below 1.3550. The pound has struggled to extend gains beyond resistance at 1.37 as investors square positions amid concerns new COVID-19 restrictions will further derail the near-term recovery. Bullish bets have faltered, or at the very least slowed, through the last 7 days as expectations new national lockdowns will knock a further 10% off GDP forecast and the Bank of England will be forced to ease monetary policy before the middle of the year. We anticipate a period of consolidation as markets remain cautious as to the outlook with markets looking to the effects of lockdown measures for further guidance.
- NZD/USD: 0.7140 - 0.7290 ▲
- NZD/EUR: 0.5820 - 0.5930 ▲
- GBP/NZD: 1.8580 - 1.8720 ▼
- NZD/AUD: 0.9305 - 0.9410 ▲
- NZD/CAD: 0.9180 - 0.9320 ▲