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New Zealand dollar steady as Stimulus hopes ebb and flow

NZD - New Zealand Dollar

The New Zealand dollar opens this morning at much the same price as Monday’s start, holding onto 0.66 US cents having given up earlier gains. With little price action through the domestic session the New Zealand dollar advanced overnight touching 0.6645 amid hopes a US fiscal stimulus bill might still be passed before the election. House leader Nancy Pelosi said she believed legislation could be pushed through if a deal was agreed within the next 24-48 hours. With little progress made on Monday and both parties seemingly unwilling to compromise hopes faded into the daily close prompting investors to give up early risk on gains. With little hope of a COVID relief package before the election markets at least remain optimistic a program will be introduced in the new year.

The NZD showed strong gains against the AUD, pushing through 0.9350, it’s highest point in more than two months as expectations for an Australian Reserve Bank rate cut and QE introduction narrowed the gap in monetary policy expectations. Expectations for the NZD to continue to weaken against its antipodean counterpart have softened in recent weeks as the RBA has proposed cutting rates from 0.25 to 0.1 and introducing new bond buying measures in a bid to stimulate the Covid economic recovery. With resistance on moves approaching 0.9360 a break above this handle could open the door to a short-term push toward 0.94.

Key Movers

The US dollar drifted lower when valued against a basket of major counterparts amid hopes a pre – election Fiscal rescue package was still possible and renewed optimism surrounding the release of a COVID19 vaccine. The Dollar fell 0.3% as softness spread across haven assets forcing the CHF and JPY lower following comments from House Speaker and lead democrat Nancy Pelosi that intimated a deal could be pushed through before the election. If a bill is to pass through the House and Senate, it will need to be agreed within the next 24-48 hours prompting a level of cautious optimism among investors hoping for one last push. While Americans are desperate for COVID support markets are broadly expecting any plan will come after the election. Expectations the Democrats will regain a majority in both the house and senate have raised hopes of an extensive stimulus bill come the new year.

The Great British Pound and Euro both advanced through Monday on hopes ongoing trade talks may salvage a post-Brexit trade agreement. While little came of the EU summit and self-imposed deadline, Britain has said “the door is still open”. If both parties are willing to make small concessions a deal may well be struck before the official separation in 10 weeks times. Sterling rallied back through 1.30 on hopes for an 11th hour deal while the Euro advanced almost half a percent pushing back toward 1.18 to open at 1.1771. While markets remain optimistic, we are seeing investors prepare and position for a hard breakup as GBP holdings are steadily being reduced.

Attentions remain squarely affixed to the broader risk narrative with fiscal stimulus headlines and Brexit updates driving sentiment. We expect volatility within a narrowing range ahead of the November 3 election.

Expected Ranges

NZD/USD: 0.6530 - 0.6650 ▼

NZD/EUR: 0.5580 - 0.5660 ▼

GBP/NZD: 1.9480 - 1.9720 ▲

NZD/AUD: 0.9305 - 0.9410 ▲

NZD/CAD: 0.8650 - 0.8760 ▼