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RBNZ’s aggressive expansion of QE program prompts NZD sell off

NZD - New Zealand Dollar

The New Zealand dollar fell sharply through trade on Wednesday slipping back below 0.60 US cents after the RBNZ doubled its bond buying program, while suggesting interest rates below zero were on the table. Long term NZD bond yields tumbled at the prospect of negative interest rates forcing the currency off intraday highs at 0.6095 and prompting a near 2% correction to intraday lows at 0.5975. The RBNZ has adopted an aggressive stimulus program in a bid to guide the economy through the coronavirus pandemic capping Kiwi upside and forcing the currency lower against key major counterparts. The NZD fell to a six-month low against the AUD, breaking below 0.93 to touch 0.9275. As the cap between RBNZ and RBA monetary policy programs appears to widened and the AUD yield advantage improves, further downside is probable through the weeks and months ahead.

Risk sentiment continues to drive direction and with underlying demand for risk assets souring overnight amidst a gloomy global economic outlook and the possibility of longer lockdowns the NZD remains under pressure struggling to break back through 0.60 on open this morning. With the prospect of a second wave of infections all to real upside gains will likely meet resistance as they approach 0.6130 with supports at 0.5980 tested should sentiment take a more meaningful negative shift.

Key Movers

The US dollar advanced through trade on Wednesday buoyed by Federal Reserve Chair Jerome Powell’s staunch rejection of negative interest rates and a broader risk off push. Equities fell as traders confidence of a swift economic recovery faltered following commentary for Powell and Leading infectious disease spokesman Dr Anthony Fauci. Powell proffered a gloomy economic outlook suggesting an extended period of economic weakness lay ahead as COVID19 continues to restrict/limit any return to normalcy, while Fauci issued a stark reminder of the risks in opening up to early, suggesting mortality rates could sky rocket and the burden on public health and finances would likely mean a longer period of economic activity than that suffered by remaining in lockdown through the short term. The dire outlook forced investors to dump risk assets, driving the dollar high amid haven flows. The AUD, CAD, NZD and GBP all fell pushing the DXY index back above 100 to touch intraday highs at 100.26.

Attentions remain squarely affixed to risk, with demand driven by evolving expectations for economic recovery. Despite having seemingly controlled the initial outbreak it is increasingly apparent a quick-fire economic recovery is becoming less and less likely prompting investors to reassess the recent risk driven recovery and perhaps opening the door to another risk off move to haven assets.

Expected Ranges

NZD/USD: 0.5920 - 0.6130 ▼

NZD/EUR: 0.5480 - 0.5620 ▼

GBP/NZD: 2.0130 - 2.0680 ▲

NZD/AUD: 0.9240 - 0.9415 ▼

NZD/CAD: 0.8380 - 0.8570 ▼