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Kiwi bounces between support and resistance as markets react to evolving US Election

NZD - New Zealand Dollar

The New Zealand dollar tracked between key support and resistance handles through trade on Wednesday, tracing a wide path as investors reacted to changes in the race for the US presidency. The NZD enjoyed strong gains early, pushing through 0.67 to touch highs at 0.6740 as markets looked to front run the result and price in a Biden win. However, with Trump securing an early win and outperforming in traditionally Democratic counties in Florida, a crucial battleground State, traders rushed to amend expectations prompting a swift correction in risk sentiment. The NZD fell back through 0.6650 to touch lows at 0.6620. The NZD then began a slow climb back toward 0.67 as headlines suggest Biden and Harris now have the clearest path to victory.

Our attentions remain squarely affixed to the Presidential Race with 7 key swing states still too close. If Biden can maintain his narrow lead in Nevada, Arizona, and Michigan he will secure enough Electoral College votes to take the White House. That said, this election is excruciatingly close and with key county and State counts delayed by the swathe of postal and absentee ballots a final result may not be available until the weekend. Such a narrow race will likely prompt calls for a recount in key districts, prolonging proceedings and clouding the outlook through the weeks ahead. While the reaction across currency markets has been relatively muted given the scale of uncertainty, we expect a protracted count will foster greater volatility leaving the NZD open for a downward correction through the short term.

Key Movers

The US dollar opens marginally lower this morning as currency markets have maintained a modicum of calm despite the chaos and uncertainty surrounding this nail-bitingly close US Presidential race. With markets front running a Democrat victory early the US shifted lower before early counting and Republican victory in key swing states forced investors to unwind early bets, correction positions ahead of what promised to be a much narrower race than polls suggested. Despite Trump claiming victory and demanding that no further ballots be counted the Democrats have emerged with the clearest path to the White House. 7 key swing states remain in play the contest couldn’t be closer. Biden appears to have flipped Wisconsin and holds a narrow lead in Michigan, Arizona and Nevada. If the democrats can flip all four they will secure the required 270 Electoral colleges. That said such a close race all but guarantees the Republican and the incumbent will demand a recount in key districts, delaying the final result for days if not weeks. A protracted count will increase short term uncertainty and foster greater volatility with markets adjusting positions in response to evolving headlines until a clear winner is known.

The Euro maintain a relatively narrow trading band, bouncing between key technical supports at 1.16 and highs at 1.1775 while the Great British Pound underperformed failing to extend back beyond 1.30. As if reminding us there is a world outside the US election key UK-EU negotiator Michael Barnier commented on the progress of Brexit talks. Leaders have been locked in intensive talks for 6 days now, with Barnier suggesting little progress has been made on key sticking points the prospect of a deal in the coming days appears unlikely. Sterling’s fortunes remain beholden to Brexit outcomes and failure to deliver even a partial Brexit trade agreement will see a swift downward correction.

Expected Ranges

NZD/USD: 0.6580 - 0.6790 ▲

NZD/EUR: 0.5620 - 0.5750 ▲

GBP/NZD: 1.9220 - 1.9620 ▼

NZD/AUD: 0.9240 - 0.9390 ▼

NZD/CAD: 0.8720 - 0.8850 ▼