Daily Currency Update

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Kiwi underperforms as USD looks to recoup July’s selloff

NZD - New Zealand Dollar

The New Zealand dollar fell through trade on Monday, despite a broad risk on tone. The NZD slipped back below 00.66 to touch intraday lows at 0.6575 as the US dollar looked to recoup some of the losses suffered through July. Having rallied through the later half of last month the NZD was poised for a short-term correction, with investors looking to take stock of net shorts and absorb profits on risk plays.

Markets continue to ignore fundamentals with risk and fiscal stimulus measures continuing to drive direction. As long as positive sentiment holds and the US struggles to break the shackles of COVID-19 there is scope for sustained Kiwi upside and a renewed US dollar downturn. Key to direction in the short term is US fiscal stimulus plans. Lawmakers remain at loggerheads over partisan divisions and a protracted negotiation risks pushing the US economy deeper into recession. Watch support on moves approaching 0.6480/.65 with resistance on moves above 0.67.

Key Movers

The US dollar edged marginally higher through trade on Monday as investors continue to unwind short positions following the worst monthly decline in over 10 years. Improvement in the trend of COVID-19’s spread, better than expected manufacturing data and the promise of fiscal stimulus helped drive the USD upward, pushing the dollar index back toward 94, having touched session highs at 93.997.

The Euro fell, touching intraday lows at 1.17 before creeping back above 1.1750. The single currency continues to bask in the afterglow of the EU recovery fund and while last months move may have been overdone , there is scope to suggest the correction through the start of August is merely short term and the upturn will continue though the later half of the year.

The Great British Pound edged lower through trade on Monday, ending the month-long upturn and shifting back toward 1.30. Sterling enjoyed it best month in a decade, when measured against the USD, bouncing strongly off June lows to extend back above 1.31. The speed of the upturn left the door open for yesterday’s correction and investors looked to take profit ahead of what is typically a tricky month for risk assets. Despite Sterling’s outperformance against the USD, it has tracked largely sideways against most other major counterparts, highlighting just how fragile the currency is and confirming impetus behind the upturn has been dollar weakness rather than any inherent strength in the Pound.

Attentions now turn to US lawmakers as, Republicans and Democrats continue to negotiations on the next US fiscal Stimulus Bill. Markets are already pricing in increased government support in the near term, but with partisan politics delaying progress and unemployment benefits no longer available the US economy risk tipping off a fiscal cliff if an agreement cannot be reached in the coming days/week.

Expected Ranges

NZD/USD: 0.6480 - 0.6650 ▼

NZD/EUR: 0.5580 - 0.5680 ▼

GBP/NZD: 1.9520 - 1.9920 ▲

NZD/AUD: 0.9240 - 0.9390 ▲

NZD/CAD: 0.8780 - 0.8920 ▼