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NZD drifts sideways, unable to capitalise on improving sentiment

NZD - New Zealand Dollar

The New Zealand dollar offered little through trade on Monday, unable to capitalise on broader USD weakness and an uptick across risk assets. The NZD track sideways for much of the session maintaining a narrow range and bouncing between 0.6631 and 0.6654. Markets seemingly ignored a marginal downturn in commodity prices and an amendment in Auckland’s COVID alert restrictions to Level 1. Most analyst had anticipated the adjustment in social distancing protocol and while COVID has been efficiently controlled within NZ it shows little signs of slowing globally, casting a cloud over the outlook for the global economy and weighing on upside for the NZD. Sentiment continues to drive direction meaning a greater chance of volatility within set ranges through the weeks ahead. We still expect the NZD will fluctuate between support at 0.64 and resistance at 0.68 through the end of 2020.

Key Movers

The USD and JPY were the big losers through trade on Monday as improving sentiment, amplified demand for risk and prompted a shift away from haven assets. President Trump’s improving health eased concerns the Presidential election may need to be delayed while helping firm challenger Joe Biden’s position in the polls. Markets are beginning to price in a Biden/Harris win and as the margin in the polls grows, concerns of a protracted post-election legal battle fade. The Dollar fell three tenths of a percent as markets chased equities higher.

The Euro outperformed on Monday, rallying half a percent to touch a two-week high at 1.1775. An adjustment in September PMI numbers and broader US dollar weakness helped fuel demand for the single currency as attentions turn to Commentary from ECB President Christine Lagarde on Wednesday for any insight suggesting the Bank will adjust its current policy setting in response to a new wave of COVID 19 infections and lockdowns. The Euro enjoyed strong gains through the 2nd quarter as aggressive stimulus measures and improving COVID 19 conditions bolstered expectations Europe could rebound quickly. Case numbers are however rapidly on the rise and while governments have been slow to implement aggressive stay at home measures consumer activities are none-the-less changing weighing on the recovery and likely dampening Euro upside through the short to medium term.

The Great British Pound edged higher, up 0.3% and pushing back toward 1.30, having touched intraday highs at 1.2985. Markets largely ignored commentary from Bank of England policy marker Haskell, suggesting the Bank stood ready to adjust the current policy setting and possibly introduce negative interest rates should further stimulus be required. Markets instead are focused on fading hopes an 11th hour Brexit deal will be reached. With the deadline fast approaching, markets have pinned their hopes on a new round of talks aimed at bridging the gaps currently preventing a deal. Failure to compromise will weigh heavily on the Pound.

Expected Ranges

NZD/USD: 0.6580 - 0.6680 ▲

NZD/EUR: 0.5590 - 0.5680 ▼

GBP/NZD: 1.9320 - 1.9690 ▲

NZD/AUD: 0.9190 - 0.9305 ▼

NZD/CAD: 0.8750 - 0.8840 ▼