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Promise of negative interest rates weighs on NZD

NZD - New Zealand Dollar

The New Zealand dollar tracked lower Tuesday, doused by dovish commentary from RBNZ Governor Orr. Governor Orr outlined again the merits of negative interest rates, affirming the bank's commitment to eliminate deflation and maintain a medium-term focus. While interest rates will remain on hold through to February-March next year, the increasingly dovish RBNZ outlook has all but assured investors of a cut in February and a move to negative rates within H1. The New Zealand dollar fell through 0.66, testing 0.6550 before a rebound in risk assets (led by equities) and a weaker US dollar helped the Kiwi regain some of the day’s losses. Having pushed back to an overnight high at 0.6595 the NZD opens marginally lower this morning and currently buys 0.6580 US cents.

With little of note on the domestic macroeconomic docket we expect the NZD wills struggle to maintain upward momentum in the absence of a definitive risk on push. With negative headlines prompting fluctuations in market sentiment we anticipate ranges will narrow through the end of the month and leading into the November 3 presidential election.

Key Movers

The US dollar weakened through trade on Tuesday, marking a new one-month low against when measured against key major counterparts. The dollar index fell back below 93 touching 92.991. Equities and risk assets found support on reports house Speaker Nancy Pelosi still held out hope for a fiscal Stimulus agreement within the month, while mounting expectations for a Biden victory have emboldened hopes for extensive stimulus programs throughout 2021. While markets are confident in a Biden win and a blue wave stimulus push the rapid rise in COVID-19 infections across Europe and the US should keep a lid on investors taking larger speculative positions in the lead up. We expect the US dollar will maintain a narrow trading band through the next 2 weeks leading into November 3rd.

The Great British Pound maintained its resilience to negative headlined bouncing between 1.2910 and 1.30 despite comments from top UK Brexit negotiator David Frost that suggested a Brexit deal was not guaranteed. Frost said there was little point in resuming talks with the EU unless there was a fundamental change in the approach from Brussels. With the likelihood of a hard Brexit increasing by the day we expect Sterling will remain under pressure through the weeks and months ahead. With investors nervous about taking big bets ahead of major risk events we could see increased volatility through November and December.

Expected Ranges

NZD/USD: 0.6510 - 0.6650 ▼

NZD/EUR: 0.5520 - 0.5610 ▼

GBP/NZD: 1.9480 - 1.9820 ▲

NZD/AUD: 0.9305 - 0.9390 ▼

NZD/CAD: 0.8580 - 0.8720 ▼