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Kiwi gives up gains amid broad risk off shift

NZD - New Zealand Dollar

The New Zealand dollar fell sharply through trade on Monday, dragged back below 0.67 US cents following a broader sell off in risk assets and flight to haven currencies. Growing concern rising COVID19 infections across Europe and the US could prompt governments to reinstate crippling social lockdown measures has prompted a shift in market sentiment through the last 3 weeks. The previously overwhelmingly positive undercurrent has soured prompting investors to correct equity values and seek the safety of Government bonds and haven currencies. Fears a 2nd wave of infections will stopper the global economic recovery weighed on the NZD forcing the currency off intraday highs at 0.6780 to such session lows at 0.6650 overnight. The NZD was in fact the worst performer among major currencies, down almost one and a half percent, giving up last weeks gains. With risk sentiment shifting and speculative flows correcting we anticipate a period of consolidation leading into the US election as uncertainty continues to grow. Attentions turn to tomorrow’s RBNZ policy announcement. While we expect little change in current policy mandate markets will be keenly attuned for further forward guidance on future QE and a move to negative interest rates in 2021.

Key Movers

The US dollar outperformed overnight, dragging its haven counterparts higher as markets sought safety amid growing economic and political uncertainty. The S&P 500 looks to set to decline for a fourth consecutive week, leading global stocks lower amid fears a second wave of COVID 19 infections will cripple any further economic recovery. Case numbers in the US appear to be on the rise again while increasing political tensions add to the doubt and indecision creeping into financial markets. The Dollar found further support following the death of Ruth Bader Ginsburg. The Supreme Court Justice was an avid liberal and her passing has opened the door For Donald Trump and the Republicans to push through a new conservative nominee ahead of the November Election. If successful, the Republicans will ensure a conservative majority on the supreme court for decades to come. A crucial political win given the Courts role in shaping American culture.

With markets likely to be plagued by heightened ambiguity leading into the Presidential Election we expect a period of short term consolidation for the worlds base currency with shifting risk sentiment opening the door to additional upside gains.

Expected Ranges

NZD/USD: 0.6580 - 0.6720 ▼

NZD/EUR: 0.5580 - 0.5730 ▼

GBP/NZD: 1.8980 - 1.9420 ▲

NZD/AUD: 0.9160 - 0.9280 ▼

NZD/CAD: 0.8780 - 0.8930 ▼