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Kiwi buoyed as risk on narrative overshadows a slew of uncertainty

NZD - New Zealand Dollar

The New Zealand dollar rallied strongly through trade on Monday, following its antipodean counterpart higher as the overwhelming risk on narrative dragged commodity driven and growth sensitive currencies higher. The NZD gained 1.6%, pushing through 0.62 and 0.6250 before resistance on moves approaching 0.63. Having touched intraday day highs at 0.6304 the NZD is trading at its highest level since Mid-march and the beginning of the COVID-19 pandemic.

Optimism surrounding the re-opening of the global economy continues to drive improvements in risk sentiment, fueling demand for the NZD as a growth sensitive currency. With investors largely ignoring underlying macroeconomic fundamentals and instead responding to improvements in business and consumer confidence, expectations for an economic rebound through H2 continue to grow. We expect the NZD will enjoy sustained upside as long as the risk on rally continues, with resistance on moves approaching 0.6350 and 0.64 in play for now. That said uncertainty still plagues the current environment, with a slew of risk off catalyst poised to prompt a shift in the current narrative.

Attentions today remain squarely affixed to broader risk environment.

Key Movers

The US dollar downturn continued through trade on Monday as the world’s base currency gave up ground against most major counterparts. Grim macroeconomic data and escalating social upheaval amid a broader global risk on move forced investors away from the USD, promoting gains for the CAD, GBP, EUR, JPY, AUD and NZD. Despite the overwhelming flood of negative headlines throughout the weekend markets have persisted with the current risk on drive, choosing to ignore the current uncertainty and instead focus on expectations for recovery through the second half of 2020.

The Euro continued its upturn as the prospect of a 750 billion Euro recovery fund fueled a run through 1.11. The combined unit had come under increasing pressure prior to last weeks announcement as expectations the common currency and trade union would not be able to withstand the impacts of the COVID-19 pandemic amid growing concerns surrounding joint debt obligations weighed on investors. The EU’s plan surpassed market expectations and douses calls the common area should break up.

Attentions turn to the ECB this week, wherein policy setters are expected to increase the current QE program by 500 billion Euro, while renewed Brexit negotiations weigh on any GBP upturn.

Expected Ranges

NZD/USD: 0.6130 - 0.6350 ▲

NZD/EUR: 0.5550 - 0.5720 ▲

GBP/NZD: 1.9625 - 1.9980 ▼

NZD/AUD: 0.9190 - 0.9330 ▼

NZD/CAD: 0.8480 - 0.8580 ▼