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Kiwi slips amid new lockdowns as COVID-19 resurfaces

NZD - New Zealand Dollar

The New Zealand Dollar shifted lower through trade on Tuesday amid confirmation of 4 new community transmitted COVID-19 cases in Auckland. The four cases are contained to one household but as yet Authorities have no idea how the family members contracted the virus. In a bid to contain any significant outbreak Stage 3 restrictions have be reintroduced in Auckland while the rest of the country moves to level 2. The outbreak is a massive blow for the economy, just as it was beginning to gather momentum. At this stage the lockdown is only scheduled for 3 days as contact tracers attempt to identify the source of the outbreak. Assuming restrictions are lifted quickly the impact should be minimal, but an extended lockdown will likely dampen demand for the NZD.

Attentions today turn to the RBNZ monthly policy meeting. While we expect policymakers will maintain its current policy platform the new outbreak in COVID-19 infections could prompt a preemptive adjustment to bank stimulus measures and an increase in bond buying limits in a bid to protect the fragile recovery. A dovish undertone will likely weigh on the NZD and could prompt a short-term correction back toward 0.65/0.64.

Key Movers

The US dollar crept higher Tuesday amid a souring demand for risk. Discussions surrounding the next phase of COVID-19 relief remain at loggerheads with democrats and Republicans at an impasse, unable to progress negotiations, weighed down by partisan agenda’s. With critical income support platforms now at risk for an extended period there is a sense of nervousness creeping into markets. Failure to restore unemployment benefits will leave a huge whole in consumption and could force the US even deeper into recession. The Dollar index pushed back through 93, hitting a one-week-high. Safe haven demand should continue to prop up the dollar as long as negotiations continue.

The Euro slipped back below 1.1750, drifting off intraday highs at 1.18 amid a broader USD uptick. The single currency enjoyed early momentum following a ZEW survey of economic sentiment showed a significant improvement in German optimism. With Europe’s engine room gaining in confidence there is hope the EU will enjoy a swift recovery as we move through the latter half of 2020 and into 2021, ensuring the Euro remains well bid through the medium term.

The Great British Pound retraced early gains and again failed to hold onto an extension beyond 1.31 as a US dollar uptick and dour labour market report dampened demand for the resurgent pound. Data showed job losses reached their highest level in more than 10 years throughout the 2nd quarter, a stark reminder just how much damage was done in the early days of the Pandemic. While medium term gains against the USD remain in play we expect domestic economic woes and Brexit concerns will weigh on GBP value when compared with other major counterparts.

Expected Ranges

NZD/USD: 0.6480 - 0.6640 ▼

NZD/EUR: 0.5520 - 0.5650 ▼

GBP/NZD: 1.9580 - 1.9920 ▲

NZD/AUD: 0.9150 - 0.9280 ▼

NZD/CAD: 0.8680 - 0.8840 ▼