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Kiwi defiant in face of flash crash but can it maintain this upturn?

NZD - New Zealand Dollar

The New Zealand dollar has enjoyed a tumultuous 24 hours as spooked investors drove increased volatility prompting wild price swings and an evaporation of risk demand. Having edged upward through trade on Friday, buoyed by US weakness, the NZD succumb to the broader risk off mood on open Monday before plunging lower as Asian markets rushed to correct positions following the weekend, quickly sucking liquidity from the market and prompting a flash crash across both major and emerging currencies. The NZD touched intraday lows at 0.6014 before rattled investors begun unwinding the panicked move. The New Zealand dollar advanced throughout the overnight session, inexplicably recouping all losses, pushing back through 0.6350 and touching intraday highs at 0.6440.

As attentions remain affixed to the ever-evolving coronavirus narrative the NZD could enjoy continued short term support as US forward spreads continue to falter. However, we still anticipate the NZD will come under sustained pressure moving forward. US spreads cannot fall much further as the market has already priced in significant FOMC and federal reserve policy adjustments and as the global economy tips ever close to a GFC like recession there is a real risk the NZD gives up recent gains and stumbles toward a sub 0.60 handle.

Key Movers

The Yen and Swiss Franc surged higher through trade on Monday, advancing against major counterparts as investors rushed to haven assets. Risk appetite all but evaporated, oil prices plunged lower, equities tumbled and bond yields tracked downward as panicked investors price in a heightened probability of a global recession. Having enjoyed a sustained and prolonged period of stability since the GFC, volatility across currency markets has returned with a vengeance throughout the last 72 hours as the uncertainties and vagaries of COVID19 continue to send shockwaves through financial systems. EUR/USD implied volatility shot to a 3-year high allowing the Euro to push back through 1.14 and mark its highest level since January 2019, while USD/JPY slumped to is lowest level since 2016 as one-month volatility touched 11 year highs.

With attentions remain squarely affixed to broader health narrative risk appetite will continue to govern market direction and haven assets are likely to enjoy a sustained period of support through the weeks ahead.

Expected Ranges

NZD/USD: 0.6180 - 0.6450 ▲

NZD/EUR: 0.5420 - 0.5620 ▼

GBP/NZD: 2.0250 - 2.1050 ▲

NZD/AUD: 0.9490 - 0.9730 ▲

NZD/CAD: 0.8490 - 0.8760 ▲