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Vaccine hopes change Monetary Policy expectations

NZD - New Zealand Dollar

The New Zealand dollar, having extended beyond 0.68 has held onto gains overnight, bouncing between 0.6805 and 0.6840 amid a broader consolidation across currency markets. Markets rushed to recalibrate rate expectations yesterday following the positive early trial results for the Pfizer and BioNTech vaccine. Reports suggest the mRNA vaccine produces an effective immune response in 90% of patients with no obvious side effects at this point. With hopes the vaccine will be ready by the end of the year a return to normal may be viable in Q1 2021 (although widespread community inoculation depends on availability). A prompt return to an open economy reduces the likelihood the RBNZ will need to adopt an aggressive Monetary Policy program prompting investors to amend expectations for a move to negative interest rates.

Attentions turn to the RBNZ monetary policy statement today. A dovish tone could well undo the gains across rates markets and force markets to unwind NZD upside. Given the economies' resilience, optimism surrounding a COVID-19 vaccine and a strong domestic housing market the RBNZ may begin signalling a change to its forward guidance and a move away from its negative interest rate plan.

Key Movers

The US dollar is generally weaker when measured against a basket of major currency counterparts while the Great British Pound outperformed tracking higher against the dollar and the Euro as investors chased gains amid hopes a COVID-19 vaccine will revive the embattled British economy, while comments from key UK negotiators suggest a trade deal with the EU was imminent. With Brexit talks stagnant for so long the suggestion a post Brexit trade deal will be reached is a huge relief for markets and a catalyst that will likely push Sterling higher into the end of the year. Having pushed through 1.3250 to touch two-month highs at 1.3278 the GBP has retreated into this morning's open and currently sits at 1.3248.

Attentions today remain with the US election wash up, COVID-19 updates and Brexit trade talks. Investors are keen to continue driving the resurgent risk narrative opening the door to further USD weakness through the days and weeks ahead.

Expected Ranges

NZD/USD: 0.6750 - 0.6860 ▲

NZD/EUR: 0.5680 - 0.5820 ▲

GBP/NZD: 1.9080 - 1.9620 ▲

NZD/AUD: 0.9330 - 0.9450 ▲

NZD/CAD: 0.8780 - 0.8920 ▲