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Kiwi range bound ahead of Fed commentary

NZD - New Zealand Dollar

The New Zealand dollar crept higher through trade on Tuesday, buoyed by sustained positive sentiment and a weaker US dollar. The NZD tested 0.6550 following reports trade tensions between the US and China eased and consumer confidence in the US fell to a record 6-year low. A conversation between US and Chinese trade officials was reportedly successfully helping bolster risk demand and underpin the recent upturn in positive sentiment. Having touched intraday highs at 0.6558 the NZD edged lower into this morning’s open as it struggles to extend gains beyond 0.6550.

With little domestic data on hand to drive direction attentions turn to the US and commentary for Federal Reserve president Jerome Powell ahead of the Jackson Hole symposium on Monetary policy. Investors will be keenly attuned to any signal the Fed is prepared to amend its inflation management policy, a possible negative for the dollar.

Key Movers

Currency markets offered little to excite investors through trade on Tuesday with broader moves largely contained. The US dollar edged lower against a basket of counterparts following a steep decline in domestic consumer confidence. Conditions deteriorated at a faster pace than anticipated with confidence dipping to a 6-year low as consumer concerns regarding employment and the softening jobs market escalated. With millions of Americans thrust into unemployment and bipartisan politics delaying renewed unemployment benefit programs there is a real fear consumer led growth, the engine room of the US economy, will remain sluggish well into 2021, slowing the recovery.

The Japanese Yen was the day’s worst performer, falling as global interest rates rose. The correlation between global rates and the currencies' performance seems intact and the USD/JPY pushed through 106.30. The GBP outperformed against all major counterparts pushing back through 1.3150 following an uptick in risk demand. Easing US/China trade tensions overshadowed weaker domestic retail sales data. While Sterling has enjoyed a remarkable resurgence through the last 6 weeks, its rally comes on the heels of a broader US dollar decline. While there is scope for ongoing dollar softness, Brexit concerns and the economic effects of the Pandemic will likely weigh on direction through the months ahead.

Attentions now turn to commentary from Fed Chair Jerome Powell Thursday ahead of this year's Jackson Hole Symposium on monetary policy. Investors will be keenly attuned to any signal from the FOMC that they will shift their inflation target away from a fixed point to an average based system. Such a move would allow for a higher tolerance to inflation before the Fed steps in to raise interest rates, effectively maintaining softer monetary policy for longer, another negative for the dollar.

Expected Ranges

NZD/USD: 0.6450 - 0.6580 ▲

NZD/EUR: 0.5480 - 0.5550 ▼

GBP/NZD: 1.9920 - 2.0280 ▲

NZD/AUD: 0.9050 - 0.9160 ▲

NZD/CAD: 0.8580 - 0.8650 ▼