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

NZD - New Zealand Dollar

The New Zealand opens lower this morning, slipping below 0.64 as escalating trade tensions dampen demand for commodity led currencies and force a flight to haven assets. News China will implement a tariff on $75 billion worth of US goods surprised markets and attracted the ire of President Trump who immediately promised a 5% increase in tariffs across all Chinese imports. While China has signaled further tariffs would be issued Trump’s Twitter tirade and immediate escalation prompted a flight to haven assets and sent the CNH sharply lower. Retrospectively the NZD performed reasonably well given the scale of sell off suffered by key counterparts, a sell of led by the AUD. Having touched daily lows at 0.6389 the NZD edged back toward 0.64 into the close.

The NZD found support in comments from the RBNZ chief, wherein he suggested the Central Bank could now afford “to watch, wait and observe” before committing to additional rate cuts. His comments suggested a September rate cut is unlikely forcing investors to pare back expectations with the likely hood of monetary policy intervention now only 15%.

Attentions now turn to Thursday business confidence report for further insights into domestic economic health, while trade and subsequent risk demand remain front and centre in driving broader direction.

Key Movers

Safe Havens were the big winners on Friday as escalating trade tensions saw investors rushing away from equities, commodity led currencies and emerging markets. Demand for risk continues to wain as markets and analyst assess increasing warning signs a global recession is approaching. Momentum in equities has stalled and yield curves have inverted, while global economic uncertainties led by the trade war and Brexit are forcing central banks to maintain and implement easier monetary policy conditions. The USD fell through 106 against the Yen while the Swiss Franc pushed through 102.50.

Attentions remains squarely affixed central bank policy and global trade conditions as the primary drivers governing direction and with strong deflationary pressures guiding policy makers we anticipate sustained demand for safety and haven assets through the short term.

Expected Ranges

NZD/USD: 0.6350 - 0.6450 ▼

NZD/EUR: 0.5680 - 0.5800 ▼

GBP/NZD: 1.8900 - 1.9300 ▲

NZD/AUD: 0.9430 - 0.9570 ▲

NZD/CAD: 0.8450 - 0.8550 ▼