NZD boosted as Iowa polling drives direction, with Americans head to the voting booths

Daily Currency Update

The New Zealand dollar edged higher through trade on Monday as investors set about unwinding so called Trump trades. Markets reacted to a shock election poll in Iowa on the weekend that showed a significant shift in favour of Kamala Harris. While not considered a swing state, Iowa was a safe red seat for Trump through the 2016 and 2020 elections, so the 3-point Harris lead in polling could suggest a broader national swing in sentiment forcing markets to pare bets on a Trump victory. The NZD temporarily edged back above US$0.60 through the domestic session, only to pull back below the psychological marker through overnight trade as the race to the White House remains too close to call. With little of note on the domestic ticket, our focus remains on the US as the election and Fed Policy Meeting dominate headlines. Americans hit the polls today and with the outcome too close to call, there is ample scope for volatility as votes are counted. With Trump holding a narrow lead across key swing states, a win for the former President will likely drive further US dollar gains and add some pressure on the NZD, while a Harris win opens the door for an NZD recovery back toward US$0.62. The Fed policy meeting on Wednesday looms large as another risk marker. After cutting rates by 50 points at their last meeting, we expect policy makers will lower rates by a further 25 basis points before pausing to re-assess conditions in December. In other news, the China National People’s Congress meets today. If Trump wins we can expect policy makers will push to increase domestic demand and capacity, while a Harris election win will allow China to open up exports. We are keenly attuned to any commentary out of China this week that may help spark a broader economic recovery. The next 48 hours are critical in shaping near-term NZD direction.