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Kiwi recoups losses as USD fails to arrest recent slide

NZD - New Zealand Dollar

The New Zealand dollar outperformed almost all major counterparts through trade on Tuesday, recouping losses having underperformed this last fortnight. Outside a sustained risk on move and broader US dollar weakness there was little driving the Kiwi rally. Having pushed through 0.6550 the NZD broke back above 0.66 to touch intraday highs at 0.6610. With markets pricing in a sustained period of dollar weakness there is scope for the NZD to continue is advance toward 0.67, however the emergence of a 2nd wave in COVID-19 infections and the Governments zero tolerance policy will likely weigh on short term economic growth prospects and the broader recovery. This coupled with the RBNZ’s aggressive monetary policy platform and commitment to driving interest rates across the yield curve lower will ensure upside gains are hard won moving forward. We expect some resistance on moves extending beyond the July high at 0.6695 and year to date high at 0.6736.

Attentions today turn to the FOMC and its minutes, with markets keenly attuned for any signal a change in policy might be imminent.

Key Movers

The Pound outperformed all major counterparts through trade on Tuesday, pushing through 1.32 and marking a fresh 8-month-high amid ongoing US dollar weakness. The US Dollar index touched a two-year low overnight as a renewed influx of positive sentiment fuelled a move away from safe haven assets, while a declining yield advantage and an elongated economic recovery weigh further on the world's base currency. Sterling touched intraday highs at 1.3249 while the Euro closes in on 1.20 touching 1.1966 before edging marginally lower into this morning’s open.

Bearish bets on the USD hit their highest level in almost 10 years last week and while we have seen a rapid sell off through the last 6 weeks momentum shows little sign of slowing, with ample room for the dollar to extend the downturn. Despite the largely bleak economic outlook positive sentiment continues to fuel demand for risk assets as unprecedented Fed monetary policy settings ensure liquidity across financial markets remains intact. With little of note on docket today attentions turn to the FOMC minutes for any signal or sign a change in monetary policy is imminent.

Expected Ranges

NZD/USD: 0.6480 - 0.6630 ▲

NZD/EUR: 0.5480 - 0.5590 ▲

GBP/NZD: 1.9820 - 2.0220 ▲

NZD/AUD: 0.9020 - 0.9250 ▲

NZD/CAD: 0.8580 - 0.8720 ▲