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Kiwi rallies as social distancing restrictions downgraded

NZD - New Zealand Dollar

The New Zealand dollar rallied through trade on Monday, buoyed by a sustained risk on mood and softening demand for safe haven assets. Advancing 0.7% the NZD pushed through 0.6050 to touch intraday highs at 6073. Having officially emerged from the COVID19 lockdown at midnight last night the NZ economy will expect a boost as non-essential services can begin re-opening, albeit under the guise of strict social distancing rules, although with community transmitted cases near 0 a move to level 2 restrictions within the next 2 weeks is a real possibility, allowing an even greater opening up of the domestic economy.

Having pushed through resistance at 0.6050 the door has opened to a possible extended medium-term run. As long as the risk on mood is sustained and the easing of lockdown restrictions globally continue without a 2nd wave of coronavirus infections we can expect shorts to unwind and an extended shift away from haven assets. Despite having enjoyed consistent gains against the USD the NZD marked fresh 5-month lows against the AUD on Monday. The AUD continues to outperform when compared with is antipodean counterpart as the divergence in Monetary policy platforms and the RBNZ aggressive QE policy make the AUD a more attractive yield play. Having fallen through 0.94 and 0.9350 a move back toward 0.91 and possible below 0.90 is on the table.

Key Movers

The US dollar fell through trade on Monday, giving up some of last weeks gains as risk sentiment drove traditional safe haven currencies lower. Plans for easing lockdown and social distancing restrictions have helped fuel a recent risk on rally as positive sentiment begins to drive short- and medium-term direction. Italy, one of the worst hit by the coronavirus began reopening manufacturing and construction services, while Spain, having implemented some of the strictest lockdown measures across Europe started loosening its own social distancing controls allowing young children to play outside for the first time in 6 weeks. The dollar index fell, down two tenths of a percent and tested a break below 100 as commodity currencies led gains and the Euro bounced back above 1.0850.

Risk continues to drive direction with the current risk on move heavily reliant on a sustained flattening of the COVID 19 curve, especially as the global economy begins to gradually open up again. Assuming we can avoid a 2nd wave of infections risk demand should continue to drive demand adding downward pressure on haven assets. With little of note on today’s macroeconomic docket we turn the to Federal reserve on Wednesday and ECB on Thursday for guidance and insight into what the post COVID19 monetary policy landscape may look like.

Expected Ranges

NZD/USD: 0.5920 - 0.6120 ▲

NZD/EUR: 0.5530 - 0.5630 ▲

GBP/NZD: 2.0380 - 2.0720 ▲

NZD/AUD: 0.9190 - 0.9420 ▼

NZD/CAD: 0.8380 - 0.8550 ▼