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NZD stubbornly resistant to clouded backdrop

NZD - New Zealand Dollar

The New Zealand dollar outperformed most major counterparts through trade on Tuesday, ignoring the underlying risk off shift and pushing through 0.67 US cents. As a cautious tone envelops markets this week amid the spectra of further COVID-19 restrictions and the looming US election the NZD appears puzzlingly impervious to the broader trend. Having broken resistance at 0.67 the NZD extended toward intraday highs at 0.6725 before edging lower into this morning’s handle. The kiwi’s resilience to shifts in risk sentiment has opened the door to gains against other key counterparts. With the AUD under increasing pressure amid expectations for monetary policy easing the NZD touched multi-month highs overnight extending beyond 0.94 to touch 0.9418, while Euro uncertainty saw the kiwi break 0.5650 and close in on a push beyond 0.57 having touched 0.5685. While the short-term outlook supports further NZD upside we expect the medium and long term trends will prompt a correction. The RBNZ remains one of the most dovish major central banks and the promise of negative interest rates in Q1 coupled with an ever worsening global macroeconomic outlook will likely weigh on the currency as we move into the new year.

Key Movers

The US Dollar retreated through trade on Tuesday, giving up Monday’s gains amid growing election uncertainty and surging COVID-19 infections and hospitalisations. Despite a cautious risk backdrop and steep equity sell off the USD struggled to find any real momentum as investors continue to withhold bets ahead of the November 3rd election. National polls have Biden firmly ahead of the incumbent, however the vagaries of Electoral College system mean a close run race in key battleground States ensure the result is far from certain.

Having tracked sideways through much of the session the EURO has fallen sharply on open amid speculation Germany and France will introduce new lock down measures. Germany is expected to impose a two-week lockdown while French President Emmanuel Macron will address the nation this evening, outlining the conditions for what will likely be a month long, nationwide shutdown. France has recorded increasing record daily hospitalisations and infections through the last week as this 2nd wave spirals out of control. With Europe the epicentre of this second surge we anticipate further restrictions will follow weighing on the common currency. Having touched 1.1840 overnight the Euro has plunged back below 1.18 and current trades at 1.1785.

Expected Ranges

NZD/USD: 0.6620 - 0.6750 ▲

NZD/EUR: 0.5620 - 0.5720 ▲

GBP/NZD: 1.9320 - 1.9580 ▼

NZD/AUD: 0.9360 - 0.9470 ▲

NZD/CAD: 0.8790 - 0.8920 ▲