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A slow down in economic growth and risk-off mood prompt kiwi downturn

NZD - New Zealand Dollar

The New Zealand dollar fell through trade on Thursday as weaker than expected GDP data and a modest risk-off move bolstered demand for the USD and safe haven assets. Q1 GDP Data showed the economy shrank by 1.6%, its largest quarterly contraction in almost 30 years and an alarming insight into the possible impacts of COVID-19 lockdowns. With expectations New Zealand’s strict lockdown measure will result in a 20+% fall in Q2 GDP data, the weaker performance in Q1 suggest the economy was starting from an even weaker base than first thought. The soft print forced the kiwi toward intraday lows at 0.6427 before the promise of looser monetary policy conditions in China helped fuel a rally across commodity-led currencies. The Peoples bank of China confirmed it would cut its reverse repo rate in a bid to free up credit and stimulate the real economy and support the Chinese economic rebound. Having edged back above 0.6460 the kiwi drifted lower into this morning’s open as investors looked to safe haven assets amid rising concern over growing COVID-19 infection rates. The risk-off shift comes as Beijing continues to battle a fresh outbreak and the US continues to suffer an alarming uptick in new infections across the country. The renewed outbreak has raised fresh concerns the path to recovery may be waylaid, prompting investors to unwind some of the optimism that drove the kiwi higher through late May and early June.

Attentions today remain squarely affixed to the risk-on risk-off narrative with support forming on moves approaching 0.6430 and 0.6380, while upside runs toward 0.65 will likely meet selling pressure.

Key Movers

A modest risk-off mood prompted a broader push to safe haven currencies overnight, propping up the USD, JPY and CHF. Concerns surrounding an alarming uptick in new infections across the US and a second outbreak in Beijing have prompted investors to reassess expectations surrounding the pace and path of economic recovery. Texas, Arizona and North Carolina all reported a record number of coronavirus related hospitalisations on Wednesday as case numbers across the country continue to rise amid lifting social distancing restrictions. The US dollar edged higher as growth correlated currencies fell.

The Great British pound was the day’s big loser, falling over 1% in the wake of the Bank of England’s policy announcement. The MPC elected to leave the cash rate at 0.1% while confirming an uptick of 100billion pounds to its current QE program. The increase takes the total purchase facility to 745bn and means the program will now run into the end of the year. While the move was largely expected many analysts were pushing for a larger increase in the asset purchase program. With normal drivers flipped on their head and increased monetary easing/stimulus driving currency gains, the disappointment forced sterling below 1.2450 to intraday lows at 1.2406.

Attentions today remain squarely affixed to the broader risk narrative, with the risk on – risk off environment creating ongoing short term volatility.

Expected Ranges

NZD/USD: 0.6380 - 0.6490 ▼

NZD/EUR: 0.5680 - 0.5750 ▼

GBP/NZD: 1.9020 - 1.9480 ▼

NZD/AUD: 0.9330 - 0.9420 ▲

NZD/CAD: 0.8680 - 0.8790 ▼