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Kiwi stumbles as equity sell permeates currency markets

NZD - New Zealand Dollar

The New Zealand dollar opens lower this morning as volatility across equity markets forced investors off risk assets and back to haven currencies. Having pushed through 0.67 amid a short risk on run in the wake of the ECB policy meeting, the NZD touched intraday highs at 0.6707 before the risk-off backdrop overwhelmed Kiwi bulls and forced a correction back below 0.6650.

Having tested highs nearing 0.68 US cents through the last month, the NZD has struggled to maintain upward momentum drifting lower amid a broader US dollar correction. Sentiment leading through Q4 will likely fluctuate as the US presidential election and heightened hard Brexit fears cast a cloud over what is already an uncertain outlook. With prices firming for a shift to negative interest rates in Q1 2021 we expect the NZD will enjoy a period of consolidation through the coming weeks and months responding to risk trends and fluctuating between 0.6420 and 0.6790.

Key Movers

The US dollar edged upward through trade on Thursday, shrugging off early losses to close the day 0.2% higher. Having fallen to intraday lows near 92.70 after the ECB elected to maintain its current program of monetary policy prompted a short and sharp risk on run, the USD resumed its correlation with equity markets driving back through 93 as tech and energy stocks forced the S&p 500 and NASDAQ lower.

The euro pushed through 1.19 to touch 1.1920 after policy makers at the ECB elected to maintain the current policy setting while upgrading growth and inflation forecasts. The hawkish undertone and suggestions the bank will do little in the interim to combat the euro’s appreciation helped bolster demand for the single currency before Brexit weakness and a broader risk-off shift prompted markets to give up gains and push the currency back toward 1.1820.

The Great British pound sell-off continued as mounting Brexit fears weigh on the embattled currency. Trade negotiations have stalled heightening fears a “no deal” divorce will eventuate. Sterling moved sharply lower losing almost 2% and touching intraday lows at 1.2780 before creeping higher into Friday’s open. With risk sentiment faltering and Brexit concerns escalating we expect the pound will remain under pressure as we move toward the self imposed October trade deal deadline. As the likelihood of a no deal Brexit increases, we expect the GBP will continue to give up gains won through July and August.

Expected Ranges

NZD/USD: 0.6580 - 0.6720 ▼

NZD/EUR: 0.5580 - 0.5670 ▼

GBP/NZD: 1.8980 - 1.9530 ▼

NZD/AUD: 0.9080 - 0.9220 ▼

NZD/CAD: 0.8720 - 0.8820