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Kiwi retreats having failed to break resistance at 0.67

NZD - New Zealand Dollar

The New Zealand dollar broke above .67 US cents through Tuesday, touching intraday highs at 0.6702 before retreating as the USD paired losses. While the risk on narrative remains intact and rove the NZD higher throughout the early hours of the domestic session markets shifted toward a more cautious tone through the day as the FOMC policy meeting and promised Fiscal stimulus programs proved enough of a risk event to temper risk demand and force investors to pause and check positions. While the fundamentals behind the US downturn remain intact and the potential for further NZD upside is still in play this week's risk events could force a short term correction and consolidation. If congress can agree a stimulus plan before weeks end we’d expect some dollar support forcing the kiwi back toward 0.66, while failure to put aside partisan difference may prompt another bout of weakness and springboard the NZD through resistance at 0.67.

Key Movers

The US dollar bounced of two year lows through trade on Tuesday as investors looked to consolidate the recent sell off and check positions ahead of the Fed’s upcoming monetary policy meeting and an anticipated announcement surrounding Fiscal stimulus plans. While the dollar is down over 3.5% through July the dollar index jumped back toward 94 overnight as markets adopted a more cautious tone and risk demand tapered.

Attentions are fixed on the upcoming Fed policy meeting. While we do not expect the FOMC will employ any new policy measures there could be a change to forward guidance, with average inflation targets possibly lifted to counter rising prices and make up for a decade of undershooting. An increase to the inflation target will likely weigh further on real yield returns as interest rates will remain lower for longer, dampening demand for the USD.

Fiscal stimulus plans also pose a risk to short term trends with republicans and democrats debating the size and breadth of new COVID-19 support packages. The Democrats have proposed a 3 trillion dollar platform while republicans are looking to scale back spending and push a 1 trillion dollar support program. With negotiations at loggerheads there is a real fear an agreement won’t be reach before the end of the week when the current unemployment benefits program ends. An eleventh hour deal could provide short term relief for the world’s base currency as investors continue to favour aggressive and proactive government intervention.

The Euro has slipped off highs approaching 1.18 on the back of the USD uptick and currently buys 1.1720, while the Pound was one of the days top performers, advancing through 1.29 as technical buying as broader USD weakness continues to drive direction.

Expected Ranges

NZD/USD: 0.6580 - 0.6720 ▼

NZD/EUR: 0.5620 - 0.5710 ▼

GBP/NZD: 1.9180 - 1.9520 ▲

NZD/AUD: 0.9260 - 0.9390 ▼

NZD/CAD: 0.8820 - 0.8940 ▼