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Kiwi gives up 0.67 as risk sentiment sours

NZD - New Zealand Dollar

The New Zealand dollar fell through trade on Wednesday, finally succumbing to the broader risk off undercurrent plaguing financial markets this week. The NZD had proved remarkably impervious to the broader sell off across equities and risk assets through the early part of the week, however investors could hardly ignore the worst run on stocks in four months. The S&P 500 led losses across equity markets, plunging 3.5% as investors looked for haven plays amid a worsening COVID-19 pandemic and US election uncertainty. With Europe battling to contain the second wave of infections France and Germany announced new lockdown restrictions, stoking fears the economic recovery will be derailed. The Kiwi gave up early moves above 0.67 and intraday highs at 0.6720 plunging almost 100 points to intraday lows at 0.6630.

Attentions remain squarely affixed on next weeks US election with narrowing polls in key States and ongoing legal battles between democrats and republicans over the proper way to count ballots, increasing tensions and prompting expectations for a drawn-out election count. We expect investors will continue to sideline big bets through the coming days ensuring volatility remains constrained by recent ranges.

Key Movers

The US dollar advanced through trade on Wednesday, buoyed by a sharp correction in risk demand amid a worsening COVID-19 pandemic and US election uncertainty. Germany and France’s commitment to new lock down measures in a bid to curtail the virus scuttled risk demand forcing the common currency back below 1.1750 as implied volatility touched multi-month highs. While investors are withholding big bets until after the US election there is a gathering sense the common currency may be running out of steam. Hopes Europe had seen the worst of the pandemic and were poised for a Q4 recovery have all but evaporated as the virus continues its rampant and devastating spread across the continent. Europe and the US are both locked in a battle against the virus and with few monetary policy tools left to guide the economy through the crisis there are fears the ECB will have to dive deep into the QE tool box in a bid to stimulate growth.
Attentions remain squarely affixed to the evolving pandemic with volatility in the wake of next week's election likely to give us a better indication of direction and value into the end of the year.

Expected Ranges

NZD/USD: 0.6580 - 0.6720 ▼

NZD/EUR: 0.5620 - 0.5705 ▼

GBP/NZD: 1.9320 - 1.9680 ▲

NZD/AUD: 0.9360 - 0.9450 ▲

NZD/CAD: 0.8820 - 0.8920 ▲