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Kiwi falters as risk aversion returns

NZD - New Zealand Dollar

The New Zealand dollar was one of the worst performing major currencies overnight, forced lower amid increased risk aversion and a push toward safe haven assets. Investors looked to correct the weeks earlier gains following a surprise uptick in US jobless claims. Unemployment claims push above 1.4 million for the first time since March, highlighting the grim state of the US labour market and broader US condition. Case numbers continue to rise at an alarming rate and with top health officials suggesting daily infection rates could push through 100,000 by mid-August, there appears little scope for improvement in the near term. Having touched intraday highs at 0.6690 the NZD fell sharply, dipping back below 0.6650 before finding support at 0.6630.

Attentions remain squarely affixed to COVID-19 headlines as fluctuations in risk aversion continue to dominate direction. Despite this week’s upturn, heightened uncertainty across financial markets continues to plague conviction and we anticipate headwinds on moves approaching 0.6690/0.67, unless another catalyst for risk emerges. Our focus today turns to European Manufacturing and Services PMI’s while Republicans and Democrats continue to debate the scale and delivery of fiscal support. With existing unemployment benefits set to expire at the end of the month, investors are keenly attuned to see what lawmakers will agree in the race to keep the economy afloat.

Key Movers

Despite gains against commodity currencies and a push to haven assets, the US dollar index fell through trade on Thursday as the euro continued its upturn while the JPY and CHF outperformed. The single currency pushed back above 1.16 marking fresh intraday highs at 1.1625, its highest level since October 2018. Investors are moving to price in a quicker European recovery as the US remains mired in the depths of the COVID-19 pandemic and Congress continues to drag its heels in delivering extended stimulus support. With conviction behind the move away from the dollar growing, there is scope to suggest the euro upturn will continue, with broader risk aversion the primary threat to the current upward shift. If a risk-off mood takes hold of equities and key indexes begin to falter then we would expect a sudden push back toward the world’s base currency.

The Great British pound struggled again as talks with key EU officials ended with little progress made. Negotiations will continue next week, but there is little hope of a deal being reached in the near term, with both sides at loggerheads. With a hard Brexit firming as a more likely scenario we expect sterling will continue to struggle with nothing but an 11th hour deal to save it.

Expected Ranges

NZD/USD: 0.6490 - 0.6700 ▼

NZD/EUR: 0.5690 - 0.5780 ▼

GBP/NZD: 1.8980 - 1.9320 ▲

NZD/AUD: 0.9305 - 0.9410 ▲

NZD/CAD: 0.8830 - 0.8950 ▼