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Kiwi bounces overnight as US dollar falters in face of record stimulus

NZD - New Zealand Dollar

The New Zealand dollar edged lower through the domestic trading session on Monday, touching intraday lows at 0.5599 before bouncing higher overnight and testing resistance at 0.5730. The Kiwi dipped below 0.5650 on open after the RBNZ announced a comprehensive quantitative easing program designed to sure up the domestic economy. The central bank will purchase $30 billion in government bonds through the next 12 months, essentially funding the fiscal spending spree in a coordinated response to the unfolding coronavirus pandemic.

Having tested moves below 0.56, the NZD then rallied overnight after the US dipped across the board after the Federal reserve announced unprecedented measures to backstop the economic slowdown and cushion the impact of recession sparked by the COVID-19 virus. Bouncing through 0.57, the New Zealand dollar opens this morning at 0.5690 as attentions remain squarely affixed to the unfolding coronavirus impact.

Key Movers

The US dollar fell through trade on Monday after the Fed announced unprecedented monetary policy stimulus measures designed to sure up the domestic economy and cushion the impact of the looming recession. The Federal reserve announced new programs wherein it will lend against student loans, credit cards and small businesses, while supporting larger employers in maintaining as much of the domestic workforce as possible. The Fed will also expand its purchase of mortgage backed securities to help normalise market function, doing everything it can to help guide the economy through this unmatched period of uncertainty.

While broader markets remain reluctant to buy back into risk assets we expect haven plays will remain popular through the short and medium term. That said we would expect the record levels of central bank and government stimulus to bite at some point. As congress passes a 2 trillion dollar stimulus package we expect confidence among investors will improve, perhaps weighing on the USD and fostering a correction of the recent overshoot.

Sterling’s meteoric collapse continued through trade on Monday as investors dropped the currency amid coronavirus concerns. The Pound slipped back below 1.15 and edged nearer last week’s low of 1.1413. Investors are reluctant to hold onto the GBP as current account concerns and fears Britain’s approach to dealing with the coronavirus outbreak will mean a prolonged and disjointed disruption to economic performance. With recent moves primarily across short positions there is still scope for a deeper depreciation as normal market function resumes and investors begin assessing net long balances. Watch support at 35 year lows with a break potentially signaling another run on pound.

Expected Ranges

NZD/USD: 0.5490 - 0.5850 ▲

NZD/EUR: 0.5030 - 0.5450 ▲

GBP/NZD: 1.9820 - 2.0670 ▼

NZD/AUD: 0.9750 - 0.9920 ▲

NZD/CAD: 0.8030 - 0.8420 ▲