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Kiwi forced sharply lower as equity sell-off leaks into currency markets

NZD - New Zealand Dollar

The New Zealand Dollar underperformed through trade on Tuesday shifting sharply lower amid a push to safe haven currencies and a broader USD uptick. Having offered little through the domestic session, bouncing between 0.6690 and 0.6710 the Kiwi dropped to intraday lows at 0.6610 overnight as US investors returned from the Labour Day long weekend and resumed last week's equity sell-off. Tech stocks led losses as US equities lost some 3% prompting the risk off mood to permeate into currency markets and drive demand for the US dollar, Japanese Yen and Swiss Franc.

Despite the shift in risk sentiment and sharp correction across risk assets the move isn’t all negative, in fact given the pace of the advance through 0.67 and toward 0.68 a short term correction isn’t a surprise, and we expect the NZD will continue to outperform when measured against the USD as we move into Q4.

Attentions today turn to ANZ business survey. We anticipate the report will show sustained weak levels of confidence as COVID-19 restrictions remain in place and the election moves ever nearer. With support at 0.66 and 0.6580 intact for now we are watching broader risk trends as the primary marker governing direction through trade today.

Key Movers

Safe Haven currencies outperformed through trade on Tuesday as the rout on US and global equities continued through trade on Tuesday. The CHF, JPY and USD enjoyed strong gains as commodity and growth correlated currencies shifted sharply lower. The USD climbed of 28-month lows to post a fresh four-week-high, buoyed by a broader risk off tone and GBP correction. The sell off in US stocks helped fuel demand for the world’s base currency while heightened Brexit concerns forced Sterling back below 1.30. The Great British Pound marked a four-week low Tuesday as fears Britain is looking to undercut trade talks and leave the EU without a trade agreement grew. The latest round of talks began with Britain suggesting it would override parts of the withdrawal Agreement once it leaves the EU. EU officials retaliated warning there would be no trade pact if the Withdrawal Agreement was not upheld. Talks soured and as the self-imposed October deadline looms large it appears increasingly likely the two sides will split without a plan to sustaining the relationship into the future. Touching intraday lows at 1.2975 there is a sense the GBP’s July/August rally is over. Brexit fears are again front and centre and a break without a deal will likely prompt a deeper GBP correction.

Expected Ranges

NZD/USD: 0.6530 - 0.6710 ▼

NZD/EUR: 0.5580 - 0.5670 ▼

GBP/NZD: 1.9420 - 1.9780 ▼

NZD/AUD: 0.9080 - 0.9220 ▼

NZD/CAD: 0.8680 - 0.8790 ▼