Daily Currency Update

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Kiwi vulnerable as CNH and commodity led currencies pummeled by increasing trade tension

NZD - New Zealand Dollar

The NZD drifted lower through trade on Thursday as selling pressures mounted after the CNY and CNH suffered a mark down on escalating trade war concerns. Moving through 0.6400 the NZD touched fresh lows at 0.6363, levels not seen since January 2016. Opening 50 points lower, price action appears to have stabilised, however the Kiwi remains vulnerable to broader risk off moves and further CNY depreciation. The NZD’s correlation with the CNY and CNH have forced us to reduce our fair value estimates moving into the end of the year as trade concerns push the CNY toward 7.40. Should the Yuan continue is current path of depreciation we envisage the NZD shifting below 0.6350, opening up moves toward 0.63 and a possible broader medium/long term range between 0.60 and 0.6350.

Attentions now turn to the Jackson Hole Symposium of Central Banks. The NZD may find some support in a weakened USD as investors price in a downgrade of Fed global growth estimates and possible signal toward further rate cuts. Fed Chair Jerome Powell is expected to sight the slowdown in global economic expansion and flattening yield curve as reason for a dovish adjustment in the monetary policy outlook.

Key Movers

The USD drifted lower overnight as investors adjusted positions leading into this weekends Jackson Hole Symposium of Central Banks. Analysts are anticipating Fed Chair Jerome Powell will proffer a measured review of global economic conditions, citing a flattening in the yield curve and the prolonged trade war as reasons to maintain an open and easily adjusted monetary policy outlook. A dovish lilt from the Fed President will heighten expectations for a second rate adjustment and open the door to further USD downside.

The Great British Pound jumped upward overnight as the hopes a resolution to Brexit negotiations could be found before the October 31 deadline. German Chancellor Angela Merkel hinted that a compromise on issues surrounding the Irish Border backstop may be found, bolstering expectations a deal can be done. Sterling jumped back through 1.22 and touched session highs at 1.2265 before profit taking forced it to drift lower into the daily close. With direction and fortunes pinned to the Brexit process this latest development could prompt a halt to the spate of recent selling. Markets and investors have bet heavily against the GBP since May’s resignation and Boris Johnson's succession and any positive Brexit news could open the door to a marked reversal and upward correction.

Expected Ranges

NZD/USD: 0.6350 - 0.6430 ▼

NZD/EUR: 0.5680 - 0.5780 ▼

GBP/NZD: 1.8920 - 1.9480 ▲

NZD/AUD: 0.9380 - 0.9480 ▼

NZD/CAD: 0.8380 - 0.8520 ▼