Daily Currency Update

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Kiwi range bound as volatility across currency markets eased

NZD - New Zealand Dollar

The New Zealand dollar offered little to excite investors through trade on Tuesday. Maintaining a tight 30 point range amid support on moves approaching 0.66. With little of note on the domestic docket attentions turned to fluctuations in risk sentiment and broader currency flows. Sustained US softness helped underpin the Kiwi’s recent upturn but moves across currency markets were largely muted and the NZD struggled to reach beyond 0.6630. A downturn in dairy prices weighed on the NZD as whole milk prices fell over 7% while the GDT index fell 5%. The sharp reversal erases about half the gains won back since the May low and raises questions as to what the global slowdown means for one of New Zealand’s key exports.

NZD/AUD fell through 0.9240, marking a fresh two-month low as hopes a trans-Tasman travel bubble would help revive the local tourism industry fade amid stricter lockdowns in Victoria.

Attentions today remain affixed to risk flows, with US fiscal stimulus negotiations front and centre. Democrats and Republicans remain at loggerheads and while some progress has been made the gulf between the parties suggests an immediate solution and complete package may not be forthcoming.

Key Movers

The US dollar fell through trade on Tuesday, giving up hard fought gains through Friday and Monday as talks between Republicans and Democrats on the next round of COVID-19 stimulus appear stymied by partisan differences. Having suffered its worst monthly decline in a decade, the dollars short term prospects now rest in the hands of Fiscal support plans. Government relief is crucial in seeing the US through the COVID-19 pandemic and with unemployment benefits ending last week, failure to deliver a new round of support immediately risks an even steeper economic downturn as consumer sentiment and spending essentially evaporates. Currency markets remain ties to risk and fiscal spending at present. If Congress can agree an extensive and wide reaching relief program we would expect the USD to find support and reverse July’s losses, however a republican led program, targeting the bare minimum will likely chasten investors and underpin the recent downturn.

The Great British Pound edged lower, dipping below 1.30 as fears a 2nd wave of infections will derail the recovery dampened demand and prompted a shift away from near 5-month highs. Despite registering its largest monthly rally in more than 10 years there are significant headwinds ahead for the GBP. Brexit negotiations remain at loggerheads as the December deadline looms larger, while the threat of COVID-19 is far from over and it is unlikely the economy will be operating at 100% until well into 2021. We expect resistance on moves approaching 1.33/1.35 with US weakness the key to any sustained upturn.

Expected Ranges

NZD/USD: 0.6580 - 0.6690 ▲

NZD/EUR: 0.5580 - 0.5650 ▼

GBP/NZD: 1.9520 - 1.9880 ▼

NZD/AUD: 0.9190 - 0.9340 ▼

NZD/CAD: 0.8780 - 0.8880 ▼