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Kiwi hones in on break above 0.65 US cents as risk on narrative continues

NZD - New Zealand Dollar

The New Zealand dollar rally continued through trade on Wednesday amid sustained demand for equities and encouraging macroeconomic indicators. The NZD pushed through 0.64 US cents touching intraday highs at 0.6442 as the disconnect between fundamentals and risk demand continues to drive growth sensitive currencies higher. The Kiwi found added support in improved Chinese services data. The Caixin services index printed above the line of expansion and contraction for the first time since the coronavirus pandemic enveloped the world’s second largest economy. With China now seen as a proxy for the path to recovery as countries around the world loosen social distancing and lockdown restrictions the upturn and improved service demand provides and encouraging backdrop for broader economic recovery.

Attentions today remain squarely affixed to the current risk narrative. As investors continue to unwind haven plays and the USD comes under increasing downside pressure there is scope for the NZD to extend the current rally with little in the way of technical resistance preventing a run back through 0.65 US cents.

Key Movers

The US dollar retreated through trade on Wednesday, slipping to an 11-week low as investors continued to shed safe haven assets. Demand for risk continues to improve as markets the disconnect between fundamentals and direction continues. While macroeconomic indicators paint a dire picture, printing well below the line of contraction and expansion the trend line is beginning to point in the right direction, bolstering hopes that with ongoing easing of social distancing restrictions the global economy will rebound quicker than first anticipated.

The Euro enjoyed modest gains up six tenths of a percent to 1.1236. The shared currency has enjoyed strong gains since the EU commissions proposal for a 750 Euro recovery fund. The scheme, if agreed by all 27 member states would go beyond initial expectations and represents an incredibly important step forward for the Eurozone and EU project at a time when its very existence was being questioned. Having rallied 3% through the last 10 days the currency is well placed to take advantage of ongoing USD weakness.

The Japanese Yen was again the worst performing major unit falling another quarter percent against the Greenback as the move away from haven assets forces investors to unwind JPY positions.

Attentions today turn to the European Central Bank, wherein we expect they will announce extensions to its QE program, ramping up bond purchases as it attempts to steer the continent through the coronavirus crisis.

Expected Ranges

NZD/USD: 0.6280 - 0.6520 ▲

NZD/EUR: 0.5620 - 0.5750 ▼

GBP/NZD: 1.9420 - 1.9820 ▼

NZD/AUD: 0.9180 - 0.9350 ▲

NZD/CAD: 0.8580 - 0.8720 ▲