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Kiwi falters as US-China tensions escalate

NZD - New Zealand Dollar

The New Zealand dollar fell through trade on Monday consolidating moves below 0.61 and testing intraday lows at 0.6010. The broader correction in risk demand that begun on Thursday last week continued through trade on Monday as escalating tensions between the US and China and uncertainty across equity markets prompted a push toward haven assets, forcing investors to unwind Kiwi shorts, giving up last weeks highs above 0.6150.
Risk sentiment continues to dominate direction and the NZD remains vulnerable to fluctuations in risk demand. Escalating geopolitical tensions only serve to further cloud the economic outlook and should they continue to intensify investors will be forced to begin extending the timeline of recovery for the global economy.

With little of note on the domestic macroeconomic docket today, attentions turn to tomorrows Employment report and unemployment print as crucial health markers for the broader NZ economy as it begins to open up after 6 weeks in lockdown. With conservative estimates suggesting a 0.4% jump in unemployment to 4.4% a higher level of job losses will likely see the Kiwi test supports at 0.60 while a strong read may provide some optimism and could prompt a consolidated rally back above 0.61.

Key Movers

The US dollar advance continued through trade on Monday as softness across equity markets and escalating tensions between the US and China pushed investors toward haven assets. Comments from US secretary of State, Mike Pompeo, prompted an escalation in geopolitical tensions as the US looks to portion blame for the Coronavirus outbreak squarely on China’s shoulders. Pompeo suggested there was “a significant amount of evidence” tying the outbreak to laboratory in Wuhan, intensifying fears US will look to economic measures in retaliation. There is a suggestion Trump and the Whitehouse will seek to impose wider reaching Tariff on Chinese exports or cancel payments on US treasuries owned by China. Either way the swelling hostilities are only serving to add to increased uncertainty and volatility across FX markets, bolstering demand for the USD, JPY and CHF. The dollar index is up three tenths of a percent to 99.53.

The Euro and GBP both gave up gains against the USD as investors unwind April gains safeguarding haven flows and extending USD shorts.

Attentions today turn to US services data and a German constitutional Court Ruling which will determine if the country is bound to participate in QE programs set out by the ECB. While the court is unlikely to rule against the European Central Bank a surprise judgement will send shockwaves across Europe as the potency of monetary policy tools suffers a significant shock and Europe’s ability to climb out of this crisis is significantly hampered.

Expected Ranges

NZD/USD: 0.5920 - 0.6130 ▼

NZD/EUR: 0.5480 - 0.5620 ▲

GBP/NZD: 2.0280 - 2.0720 ▼

NZD/AUD: 0.9360 - 0.9450 ▼

NZD/CAD: 0.8470 - 0.8620 ▼