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Kiwi driven lower as COVID19 cases spike in countries easing restrictions

NZD - New Zealand Dollar

The New Zealand advanced through the domestic session as optimism surrounding the opening of the domestic economy and an amendment in social distancing protocol, with Level 2 restrictions to be implemented from Thursday, helping to drive the currency to intraday highs at 0.6157. Having held onto gains through much of the day the NZD turned lower overnight as demand for risk faltered. An increase in the number of cases in Germany and South Korea, two countries to ease lockdown conventions early, have heightened fears a second wave of infections will force leaders to roll back the loosened restrictions and impose harsher lockdown measures again. A second shutdown right when the global economy is trying to restart will be a devastating blow to recent optimism and likely prompt another risk off run, opening the NZD to a push back below 0.60 US cents.

Risk continues to drive direction and with little of note on todays domestic docket attentions remain squarely affixed to broader market tones ahead of tomorrow’s all-important RBNZ policy meeting. We anticipate interest rates will remain on hold at 0.25% but expect the RBNZ will announce new Quantitative Easing measures. An increase in its bond buying program could force the NZD lower, while a stability will likely disappoint investors and prompt a correction in pre-emptive moves possibly driving short term NZD upside.

Watch resistance on moves approaching 0.6170 with support at 0.60 still in play or now.

Key Movers

The US dollar advanced through trade on Monday as concerns a second wave of infections may force leaders to roll back loosened restrictions prompted markets to slow demand for risk assets. Germany and South Korea, two countries that eased lockdown protocol early, have both reported alarming spikes in the number of new cases with the formation of new clusters within their respective communities a growing cause for concern. With the UK, NZ, France, Australia, Spain, Turkey and Israel all announcing amendments to there respective social distancing conventions the spike in new cases in Germany and South Korea have forced to investors to adopt a cautious tone, ensnaring the recent risk on move with top side gains for risk assets capped through the short term.

Risk remains the primary driving force governing broader currency direction as the dollar index pushed back through 100. Despite the risk off move the Japanese Yen failed to keep pace with the USD as demand for equities and US treasury bonds helped drive the dollar higher. Advancing almost 1% to touch 107.65 the USD also enjoyed gains against the Euro and GBP.

Attentions now turn to the Fed President Jerome Powell Wednesday for commentary and forward guidance. Speculation forced US futures into negative territory last week and it is expected Powell will double down on recent Fed messaging, affirming the FOMC will not introduce negative interest rates in the near term. A shift from message could hurt US demand as the yield play on key crosses, namely EUR/USD narrows.

Expected Ranges

NZD/USD: 0.6010 - 0.6170 ▼

NZD/EUR: 0.5580 - 0.5680 ▼

GBP/NZD: 2.0020 - 2.0480 ▲

NZD/AUD: 0.9330 - 0.9415 ▼

NZD/CAD: 0.8450 - 0.8570 ▼