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COVID-19 spread weighs on hopes for swift recovery; Kiwi vulnerable to risk-off move

NZD - New Zealand Dollar

In what was a largely benign trading session, the New Zealand dollar offered little to excite investors throughout Thursday as broader coronavirus concerns forced traders to the sidelines. Having touched intraday lows at 0.6403 the NZD crept higher to mark session highs at 0.6440. The kiwi then bounced to about the 40 point range as markets grappled with the alarming spread of COVID-19 cases across the US. With new infections spreading rapidly in Texas, the State Governor has suspended plans for further re-opening of the local economy in a bid to control the outbreak. The shift toward renewed restrictions has all but flattened expectations for a swift rebound in economic activity and all but guarantees a long and protracted rebuild ahead.

As sentiment plays an increasingly important roll in short-term direction, our focus remains with broader equity performance as a marker of investors’ appetite for risk. A deeper risk-off move will likely put pressure on short-term supports at 0.6380/0.64 and could see the NZD retreat back toward 0.62 and possibly dip back below 0.60 US cents.

Key Movers

The US dollar crept higher through trade on Thursday when measured against a basket of major counterparts, up two tenths or a percent and closing in on four week highs as concerns surrounding a coronavirus resurgence pushes investors toward haven assets. The rapid spread of new infections across a swathe of US states, with Texas and North Carolina forced to suspend plans to re-open their economies and instead impose new measures to try and control their respective outbreaks, has prompted investors to begin re-assessing expectations for a prompt rebound in economic activity. Even if other State and Federal officials continue with the wider economic opening, activity through the short-term is likely to be muted and the recovery process slowed. This fact is beginning to weigh on investors and we are seeing the beginnings of a shift in broader sentiment. A sustained risk-off shift will likely see the USD find renewed short-term demand as markets unwind risk plays.

The GBP is lower this morning after the UK’s Chief Brexit negotiator refused to agree to a compromise on tariffs. While the focus remains largely with the battle against the coronavirus, there is still a long way to go before the UK leaves the EU at the end of the year and further delays/setbacks in divorce negotiations are adding further downward pressure on the GBP. Having slipped below 1.24 the GBP appears well supported on moves approaching 1.2350 for now, but a sell off in risk could prompt a move back toward 1.22 and 1.20.

Expected Ranges

NZD/USD: 0.6350 - 0.6480 ▲

NZD/EUR: 0.5620 - 0.5760 ▲

GBP/NZD: 1.9080 - 1.9450 ▼

NZD/AUD: 0.9330 - 0.9390 ▼

NZD/CAD: 0.8720 - 0.8820 ▲