Daily Currency Update

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Kiwi eyes break above 0.65 as risk narrative continues to support the currency

NZD - New Zealand Dollar

The New Zealand dollar extended gains through trade on Thursday marking fresh multi-month highs as faltering risk sentiment across equities failed to extend to currency markets. Global equity markets stalled Thursday as investors paused to take stock of the recent 8-day rally with the S&P 500 edging marginally lower, losing four tenths of a percent on the day. The Kiwi touched intraday highs at 0.6480 before profit taking and an uptick in US rates prevented further US dollar weakness. While this week’s sharp upturn may be overdone there is ample scope to suggest this is the beginning of a broader USD correction. We expected risk would support the world’s base currency through much of 2020 with a possible downward correction coming through 2021 as the US economy labours under the impacts of the coronavirus. Events of the last week suggest that timeline may have moved forward and a consolidation of recent gains could open the door for an extension beyond 0.65 through the short to medium term. That said, there are hazards still in play. With the current upswing largely driven by accelerated demand for risk, a shift in sentiment prompted by a second wave of infections or lacklustre economic activity could force a swift backward correction.

Attentions today remain with the overwhelming risk narrative as markets continue to ignore weakness across key data sets instead focusing on trend lines.

Key Movers

The US dollar remains under pressure entering the end of the week as currency markets enjoy an ongoing increase in demand for risk. Despite an uptick in US treasury rates with yields up nearly 1% to their highest level since mid-March, the world’s base currency was forced lower as growth sensitive currencies continued their upswing while the euro rally extended amid increased fiscal and monetary policy stimulus. The ECB surpassed market expectations overnight delivering an expanded QE program, increasing the pace of bond purchases and extending the program into June 2021. The ECB increased its Pandemic Emergency Purchasing platform by 600m dollars, 100 million more than markets anticipated, a clear signal policy makers are looking to get ahead of the curve and drive a recovery in growth across the region. The increase in monetary policy stimulus coupled with new fiscal support from Germany and the promise of EU’s 750 billion euro recovery fund drove the combined unit higher, extending beyond 1.1350 to touch highs at 1.1360. Having rallied 5% since May 25th the euro is poised to extend gains as there is a mounting sense the US is beginning to lag behind major counterparts when it comes to the issuance of fiscal support. Discussions between democrats and republicans for an additional $1 trillion in government support are underway, however it is unlikely anything will be agreed before the July recess, meaning any program of support will not be available until the end of July at the earliest.

Attentions today remain with the risk narrative with US non-farm payrolls dominating the macro docket.

Expected Ranges

NZD/USD: 0.6280 - 0.6520 ▲

NZD/EUR: 0.5620 - 0.5780 ▼

GBP/NZD: 1.9380 - 1.9620 ▼

NZD/AUD: 0.9240 - 0.9360 ▲

NZD/CAD: 0.8620 - 0.8790 ▲