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Kiwi breaks shackles of resistance

NZD - New Zealand Dollar

The New Zealand dollar broke resistance through trade on Tuesday, surging through .66 US cents as the world's base currency plunged lower following a renewed swell in risk demand. Investors chased equities and risk currencies higher in the wake of EU leaders announcing they had agreed on the break up and distribution of the 750billion Euro Recovery Fund. While most analyst expected a compromise would be reached at some point, the final plan is a huge step forward in collective debt obligations and shared fiscal responsibility and goes a long way in shoring up the Eurozone’s economic recovery. The NZD rallied over 1%,m touching intraday highs at 0.6651, its highest level in 6 months.

Having been range bound and broadly underperforming through much of the last month the NZD has finally broken the shackles of resistance. Risk demand had moderated through June and early July as uncertainty surrounding the impacts of COVID-19 grew as case numbers surged. Investors were wary of extending gains without a clearer path to recovery. The E’s unprecedented program of low interest loans and grants and encouraging COVID-19 vaccine trials have culminated in a resurgence in risk demand and as long as optimism continues to improve there is scope for sustained NZD upside.

Key Movers

The Euro led majors higher through trade on Tuesday following the announcement EU leaders had reached an agreement surrounding the distribution of the 750 billion Euro recovery fund. Power brokers Germany and France have been pushing the Frugal Northern States to agree the planned loan and grant platform and finally reach an agreeable medium with 390 billion to be issued as debt free grants and 360 billion as low interest loans. Italy, one of the worst hit by COVID-19 is set to receive over 200 billion, with 82b issued as grants and 127b in loans. The Recovery Fund is a huge step forward in a united EU and euro zone and the first step in collective debt obligations. The Euro pushed through 1.15 touching intraday highs at 1.1540 and marking its highest level since Q1 20119.

The US dollar fell across the board Tuesday as investors chased the Euro higher and sought risk currencies as optimism for a broader global economic recovery grew in the wake of the EU recovery fund announcement. The recovery fund plan puts in stark contrast the level of fiscal support issued in the US. The worst hit by COVID-19 congress has been slow to react to fiscal stimulus needs, weighed down by partisan demands as democrats and republican quibble over the best method for distributing support. While coronavirus numbers continue to rise lawmakers will sit to discuss details of a 1 trillion dollar package designed to replace the existing unemployment benefit scheme set to expire in August. With Republican leader Mitch McConnell said to Favour a direct cash injection with a new round of Cheques delivered to US households we will be closely watching the Hill through the coming days to better understand the extent of government support moving forward.

Expected Ranges

NZD/USD: 0.6480 - 0.6690 ▲

NZD/EUR: 0.5730 - 0.5810 ▲

GBP/NZD: 1.9020 - 1.9330 ▼

NZD/AUD: 0.9270 - 0.9450 ▼

NZD/CAD: 0.8830 - 0.8980 ▲