Daily Currency Update

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Kiwi choppy as banks start pricing in negative interest rates

NZD - New Zealand Dollar

The New Zealand Dollar enjoyed mixed fortunes through trade on Tuesday, tumbling back below 0.60 throughout the domestic session before rallying on the back of broad-based US weakness overnight. The NZD lost 40 points as markets began pricing in a shift toward negative interest rates before the end of the Year. Westpac lead major investors in pricing in further cuts to the OCR suggesting the RBNZ will cut rates to -0.5% by November. The call forced domestic rates lower prompting falls at both the front and back end of the yield curve as both 2- and 10-year bonds fell. Having touched intraday lows at 0.5989 the NZD rallied strongly on the back of US dollar weakness throughout the US session. In the absence of any real catalyst it appears investors are simply correcting positions leading into month end and the Fed’s upcoming policy meeting. Having touched 0.6072 the NZD edged lower into this mornings open and currently buys 0.6053 Us cents.

While still someway off 0.6130 (mid-month highs) the NZD appears well-supported on moves approaching 0.60 and 0.5950. However, the RBNZ’s aggressive QE approach means the currency is particularly vulnerable should the recent risk on environment shift amid a second wave of coronavirus infections. Our attentions remain squarely affixed to the path of the virus as countries around the world begin relaxing social distancing measures and economies kick back into gear. If we can avoid a second coming amidst greater integration, we’d expect sustained risk on support for the NZD through the medium term.

Key Movers

With little of note on the macroeconomic calendar in what was a largely non-eventful trading day the USD suffered losses against most major counterparts as investors turned their attentions turn to today’s Federal Reserve policy meeting and looked to balance positions leading into month end. The Fed has aggressively slashed interest rates, while resuming quantitative easing measures and solidifying global liquidity lines in the wake of the COVID-19 outbreak and markets are keenly attuned to any commentary from the worlds leading central bank that may hint to longer term policy plans. Countries and States around the world are beginning to loosen social distancing restrictions as the pace of Coronavirus proliferation eases. Risk sentiment has improved through the last week driving the USD off highs and forcing the world’s base currency lower against a basket of major counterparts. Having dropped against the Euro and Pound throughout the European session the Dollar recouped losses in New York rallying 60 points into the daily close, without any real catalyst outside a correction in the Euro following Fitch’s downgrade of Italian debt rating. Fitch marked Italian bonds down to the lowest investment grade, highlighting the need for a comprehensive and widespread European rescue package.

Attentions today turn to the Fed policy meeting and accompanying statement ahead of tomorrow’s ECB policy meeting. We expect choppy trade in the lead up to both risk events as investors attempt to get a handle on longer term yield plays.

Expected Ranges

NZD/USD: 0.5950 - 0.6130 ▲

NZD/EUR: 0.5480 - 0.5630 ▲

GBP/NZD: 2.0320 - 2.0720 ▼

NZD/AUD: 0.9190 - 0.9380 ▼

NZD/CAD: 0.8380 - 0.8520 ▲