Daily Currency Update

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Kiwi wobbles as markets chase haven assets

NZD - New Zealand Dollar

The New Zealand dollar gave up ground through trade on Tuesday, shifting lower amid a sustained risk off mood and haven demand. Having tracked sideways for much of the domestic session the NZD slipped below 0.6650 to touch intraday lows at 0.6620 following shift in narrative from the US Federal Reserve. Fed member Charles Evans caught markets napping Tuesday when he suggested the FOMC may raise interest rates before inflation hit the Fed’s 2% average target, prompting investors to rapidly adjust yield expectations and prepare for a rate hike sooner than previously thought.

Having tested a break above 0.68 US cents just last week there is a sense further upside may be hard won through the short term. Sentiment has shifted and the positive undertone that drove NZD upside through May, June and July is faltering. Investors hope for a prompt and robust economic rebound are dwindling while US and European political uncertainties create added doubt as to the outlook beyond 2020. While we anticipate fundamentals will elevate the Kiwi as we move beyond the election and into 2021, there is scope for a sustained US dollar upturn should risk demand continue to sour.

Attentions today turn to the RBNZ and its latest policy meeting. We expect a Dovish tone with the focus on commentary surrounding negative interest rates and the possibility of a shift below zero prior to April 2021.

Key Movers

The US dollar outperformed again through trade on Tuesday, buoyed by renewed demand for haven assets and a correction in US interest rate expectations. A change in Feed narrative caught investors off guard through trade on Tuesday prompting a knee-jerk adjustment to yield expectations. The dollar index advanced some 0.4% testing a break above 94 and touching its highest level in over 8 weeks. Market sentiment has soured in recent weeks as a slew of negative headlines overwhelm investors. Expectations for a fiscal support package before the November election have all but evaporated as partisan bickering and ideological differences prevent Congress and the Senate from reaching an agreeable medium, while an uptick in COVID-19 infections in the last two weeks suggest the US are some way off a return to normal.

The Euro touched an 8-week low, falling through 1.17 while the Pound broke two-month lows following the introduction of new COVID-19 restrictions. Prime Minster Johnson has reinstated curfews on bars and restaurants and is encouraging Britons that can work from home to do so. The new round of restrictions are considered the bare minimum in a bid to combat a 2nd wave of infections. The Pound broke below 1.2750 to touch 1.2710 and appears poised to test a break toward 1.25 as we move toward the October Brexit deadline.

Attentions today turn to European and US manufacturing and service PMI’s and commentary for Fed Chair Jerome Powell. As positive sentiment unravels a run of negative prints could prompt a deeper risk off shift.

Expected Ranges

NZD/USD: 0.6580 - 0.6720 ▼

NZD/EUR: 0.5580 - 0.5690 ▼

GBP/NZD: 1.8980 - 1.9320 ▼

NZD/AUD: 0.9210 - 0.9290 ▲

NZD/CAD: 0.8780 - 0.8890 ▼