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Kiwi outstrips counterparts as risk sentiment continues to improve

NZD - New Zealand Dollar

The New Zealand dollar outstripped most major counterparts as Monday’s risk on mood continued through trade on Tuesday. The NZD advanced through 0.61 touching intraday highs at 0.6120 as sustained appetite for risk drove the currency higher. Alongside heightened risk demand the NZD found support in comments from key RBNZ officials, wherein they made it clear the Monetary Policy Committee would not be making any changes to the official interest rate before March 2021, dispelling expectations for a shift toward negative interest rates in 2020. Overnight Swap rates jumped 0.14% as investors corrected expectations driving the NZD higher before a correction into this morning’s open.

As attentions remain affixed to the broader risk narrative the Kiwi has enjoyed gains against the AUD, GBP, EURO and Yen. As long as the risk on mood continues we anticipate the Kiwi will hold onto gains against key crosses, with perhaps the expectation of the AUD, as diverging monetary policy platforms prompt investors to favour the Aussie dollar.

Key Movers

Haven assets were the days big losers with the USD, JPY and CHF all correcting lower when compared with other major counterparts. Monday’s risk on shift spilled into Tuesday as optimism surrounding a possible coronavirus vaccine and ever-increasing economic activity amid easing restrictions continued to fuel demand emerging market currencies and those majors tied to risk.

The Sterling bounce continued pushing back above 1.2250 to touch intraday highs at 1.2300. An uncertain coronavirus outlook and a looming hard Brexit will ensure the Great British Pound remains under pressure through the short and medium term with topside moves above 1.23 and approaching 1.25 hard won. Instead, fair value for now sit between 1.20 and 1.23.

The Euro advance continued through Tuesday marking a 1% gain to start the week. Optimism surrounding the Franco-German led EU rescue package, helped bolster demand for the single currency as hopes the fund will prop up those economies worst hit by the virus without creating long-term debt obligations. The proposal is set to be delivered to the EU commission on May 27 and is the first step toward joint debt obligations. The Euro surged to 1.0975 before shifting lower into this morning’s open.

The Norwegian Kroner was the day’s top performer, buoyed by strong gains in oil prices. Oil has enjoyed a sustained recovery after May futures fell below zero just two weeks ago. With economic activity increasing and restrictions easing demand is picking up, easing oversupply issues and driving prices higher.

Expected Ranges

NZD/USD: 0.5930 - 0.6130 ▲

NZD/EUR: 0.5480 - 0.5610 ▲

GBP/NZD: 2.0020 - 2.0380 ▼

NZD/AUD: 0.9230 - 0.9360 ▲

NZD/CAD: 0.8380 - 0.8520 ▲