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NZD underperforms and breaks 2-year low against AUD

NZD - New Zealand Dollar

The New Zealand dollar failed to follow its commodity compatriots higher through trade on Monday Struggling to extend beyond 0.6550. Despite a sustained USD sell off investors appeared reluctant to advance the NZD following last weeks RBNZ monetary policy meeting and expanded QE program. RBNZ monetary policy remains front of mind for many analysts and a key driver of kiwi under-performance through the last week. While the currency remained, range bound against the USD, its failure to keep pace with key counterparts saw heavy losses against the AUD, JPY and CAD. The Kiwi fell below 0.91 against the AUD and 0.8650 against the CAD marking fresh 2 year lows. The increasing divergence in monetary policy strategies is likely to weigh further on the NZD through the weeks and months ahead with 0.8950 and 0.88 now key resistance handles.

Attentions this week remain with Auckland’s growing number of COVID 19 infections. Having eliminated the virus once, markets will be keen to see a swift improvement in case numbers as a key marker indicating a return to looser economic restrictions.

Key Movers

The Japanese yen outperformed through trade on Monday while the US dollar resumed its downward trend and the Pound wobbled amid renewed Brexit talks. The US dollar lost ground against a basket of major counterparts as a risk on move drove the traditional safe haven index below 93 to 92.817. A continuation in US dollar selling and broader weakness allowed the JPY to mark a new one week high, breaking back below 106. Doubts over the stability of the US recovery and heightened political concerns exacerbated the dollar sell off. With Democrats and Republicans focus shifting away from Fiscal stimulus talks to their respective party conventions and the official naming of candidates there is a diminishing optimism a government COVID 19 relief package will be available before September leaving millions of Americans with crucial benefits for a least a month, worsening the divide created by the Pandemic and pushing the US even deeper into recession.
Attention remain with the FED and its meeting minutes due tomorrow. Having maintained the status quo investors will be seeking any sign the Federal Open Market Committee is preparing to amend its policy platform, particularly an adjustment to average inflation targets. A dovish review will likely add further pressure on the already embattled dollar.

Sterling remained range round through much of Monday as investors brace for more volatility ahead of new trade talks between the UK and EU. Officials are racing to find a compromise before the end of 2020 when the UK will be set adrift from the common market, relinquishing all preferential trade agreements. Unless a deal can be struck Sterling faces significant headwinds. The UK was one of the worst hit European country by the Pandemic and has suffered the biggest economic contraction fo any G7 nation. Failure to secure favourable ongoing trade conditions could be catalyst to break the back of the recent GBP run and force a correction back toward 1.20.

Expected Ranges

NZD/USD: 0.6480 - 0.6630 ▲

NZD/EUR: 0.5480 - 0.5550 ▼

GBP/NZD: 1.9780 - 2.0120 ▼

NZD/AUD: 0.8990 - 0.9190

NZD/CAD: 0.8580 - 0.8680 ▼