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Trade tensions force Kiwi back below 0.62 US cents

NZD - New Zealand Dollar

The New Zealand dollar fell through trade on Wednesday dragged downward by increasing US/China and China/Australia trade tensions. Having enjoyed a relatively soft and range bound domestic session the NZD rallied to intraday highs at 0.6230 in early overnight trade before reports China will stop its largest utilities companies buying Australian coal dampened demand for risk and dragged the antipodean currencies lower. The Kiwi fell back through 0.62, touching intraday lows at 0.6152 before creeping higher into this morning’s open, where it currently buys 0.6170 US cents.

Increasing global optimism and the promise of ongoing fiscal and monetary policy stimulus have helped drive the NZD through resistance at 0.6170. Easing lockdown restrictions have bolstered markets expectations for a swift and prompt rebound in activity. With markets already pricing in softness across macroeconomic indicators for March, April and May the focus shifts to sentiment survey’s as key markers of future possible activity. Attentions today drift to the ANZ’s business confidence survey, an important indicator of NZ business sentiment coming out of the COVID19 lockdown. As optimism continues to improve the NZD will likely enjoy sustained upward momentum, however the threat of increasing trade uncertainty and the prospect of a second wave of infections still casts a pall over upside moves and will likely cap gains through the short and medium term.

Key Movers

The Euro rallied through trade on Wednesday, buoyed by reports the EU commission has proposed a revised 750billion Euro recovery fund. In its current format the recovery fund would make up to 500billion Euro available in grants and 250 billion available in loans, limiting joint debt obligations ins a bid to appease northern states opposed to propping up their embattled southern partners. Spain and Italy are said to be the big benefactors under the current scheme. Both countries have been devastated by the impacts of COVID 19 and would be due 80 billion in grants and further loan assistance. The Euro rallied through 1.10 to touch 1.1030 before edging back toward 1.0990/1.10. The proposed plan is far from a done deal with Austria, Denmark, Sweden and the Netherlands still opposed to such an extensive grant program. EU leaders from the so called frugal four hinted the current plan was unacceptable, but acknowledge it proffered a promising starting point for further negotiations. EU leaders next meet on June 19. Despite the short term uptick the Euro remains under mounting pressure as fiscal support lags that of other major economies. ECB president Christine Lagarde lamented the pace of current negotiations, claiming fiscal support was crucial in propping up the EU economy. With the ECB expecting the European economy to fall as much as 12% through 2020, joint debt and fiscal support is critical.

The JPY and CHF both fell as investors look past trade tensions as hopes of a quick rebound in economic activity continue to drive direction. With initial indicators suggesting a positive uptick in activity across major economies attentions remain affixed to any hint a second wave of infections will derail a H2 recovery, while increasing trade uncertainties between the US and China amid renewed concerns over Hong Kong’s proposed security laws have dampened the risk rally, softening the impact on haven currencies. The offshore Yuan fell further against the USD edging ever nearer 7.20 as the impacts of tariffs and trade weigh on the currency.

The Great British Pound retreated through Wednesday as the prospect of negative interest rates and declining optimism a Brexit deal will be reached before the end of the year weighed on the currency. Having fallen back below 1.23 there is little to suggest Sterling will enjoy any long-term upturn in the sort or medium term. Covid19 lockdowns are expected to remain in place for some time yet as the UK still struggles to grapple with the devastating impacts of this unprecedented health pandemic.

Expected Ranges

NZD/USD: 0.6030 - 0.6230 ▼

NZD/EUR: 0.5580 - 0.5680 ▼

GBP/NZD: 1.9680 - 2.0020 ▼

NZD/AUD: 0.9270 - 0.9410 ▲

NZD/CAD: 0.8450 - 0.8570 ▼