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Kiwi sustains upturn as market appetite for risk renewed

NZD - New Zealand Dollar

The New Zealand dollar continued its upturn on Friday, pushing through resistance at 0.64 to touch intraday highs at 0.6428. The NZD was the top performer among G10 currencies, advancing nearly 1% as commodity units lead upside moves. Investors appetite for risk governed direction through trade on Friday and markets remained optimistic US/China trade talks would at the very least ensure an end to the recent bout of one-up-man ship. While US trade officials made clear a final deal was some way off the resumption of talks helps ease concerns tensions will escalate further in the short term.

Friday’s strong performance helped the Kiwi extend the weeks upturn advancing 1.8%, up nearly two cents from 0.6273. Having pushed off 4 year lows attentions now turn to the ECB and PBoC as key pillars in sustaining the risk on run. A dovish undertone from both the European Central Bank and People’s Bank of China could help sustain the risk on run as added stimulus will fuel equity markets. That said, it is important to note the recent risk on environment has been largely created by the deferral or extension of key risk events rather than a shift in broader global economic performance, meaning the short term upturn could well be undone should investors appetite for risk sour.

Watch resistance on moves approaching 0.6450 while support on dips toward 0.6270/50 remains intact.

Key Movers

The US dollar shifted lower across the board on Friday as mixed labour market data, fuelled expectations the domestic economic slowdown would prompt additional central bank rate cuts through the short term. Softness across employment growth offset an increase in average hourly earnings and saw expectations for a fed rate cut later this month increase. CME’s Fed watch tool is now pricing in a 91% probability of a 25 basis point cut when the Fed next meets on September 18.

The Great British Pound gave up recent gains, closing down 0.4% against the US and the worst performer among G10 currencies. Sterling slipped as Brexit updates flow thick and vast. Parliament rejected calls for a snap election in a bid to force Johnson to extend the October 31 deadline. The move has however prompted Johnson to look at alternate means and loopholes to avoid the extension. With a no-deal exit firmly back on the table Sterling opens this morning back below 1.23 buying 1.2277.

Attentions this week turn to the ECB’s rate setting and monetary policy meeting as a key driver of short-term risk appetite. Neutral market estimates are calling for a 10 basis point cut to ECB deposit rates and a resumption of QE. With expectations highs a miss from the ECB could prompt a risk off move and drive bond yields higher through the short term.

Expected Ranges

NZD/USD: 0.6250 - 0.6450 ▲

NZD/EUR: 0.5730 - 0.5880 ▲

GBP/NZD: 1.8980 - 1.9380 ▼

NZD/AUD: 0.9330 - 0.9450 ▲

NZD/CAD: 0.8370 - 0.8450 ▲