Daily Currency Update

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Kiwi outpaces major counterparts and breaks through 0.66 US cents

NZD - New Zealand Dollar

The New Zealand dollar outperformed all major counterparts through trade on Wednesday, advancing 1% overnight and breaking through 0.66 US cents. Having struggled to extend beyond resistance at 0.6550, broad based US dollar weakness and a surge in positive sentiment helped fuel demand for risk assets dragging the NZD higher. The Kiwi touched intraday and weekly highs at 0.6620 and has held gains into this morning’s open.

Attentions now turn to US fed Chair Jerome Powell as he addresses attendees of the Central bank symposium on Economic policy in Jackson Hole. Markets expect the Fed will soon amend it monetary policy setting, with most anticipating an amendment to inflation management systems. Any suggestions from Powell a correction is imminent will likely weigh on an already embattled US dollar and could help prompt an extended NZD rally toward 0.67.

Key Movers

The US dollar gave up ground to most major counterparts through trade on Wednesday as investors manage positions leading into key commentary from Fed Chair Jerome Powell. Many analysts expect the Fed will need to adjust its monetary policy platform again if it is to continue supporting the US economic recovery and ease the stresses of the recession. The most likely Fed response will be an amendment to its inflation management setting, moving away from a fixed target to an average. Such an adjustment will allow inflation to move beyond the current acceptable level and afford the FOMC more time before intervening and raising interest rates, ensuring rates remain low for longer.

The Euro traded sideways bouncing between 1.1780 and 1.1850 while Sterling continued to test an extended break above 1.32, touching highs at 1.3220.

Looking ahead we anticipate ongoing dollar weakness will continue, extending gains for the Euro as we move into the end of the year. Having met resistance on moves approaching 1.1950/1.20 the single currency has drifted lower though the last week and a half as markets consolidate positions and take stock following July’s advance. With attentions squarely affixed to risk flows we expect further gains through Q4. The major risk to this outlook is the increasing concern a 2nd wave of infections will shutdown the continent. Daily new infections are increasing in Italy, France, Spain and Germany raising questions as to whether borders can remain open. With numbers trending in the right direction in the US a reversal in pandemic fortunes could prompt a shift in direction and momentum.

Expected Ranges

NZD/USD: 0.6480 - 0.6720 ▲

NZD/EUR: 0.5480 - 0.5650 ▲

GBP/NZD: 1.9780 - 2.0220 ▼

NZD/AUD: 0.9050 - 0.9160 ▲

NZD/CAD: 0.8580 - 0.8750 ▲