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NZD tracks sideways, is the upturn running out of steam?

NZD - New Zealand Dollar

The New Zealand dollar opens in roughly the same position as Thursday morning, having tracked sideways for much of the domestic and overnight session. Having failed to extend beyond 0.6930 the NZD drifted lower as investors adopted a more wary tone as COVID cases numbers in the US continue to rise at an alarming rate. Markets have now largely priced in positive vaccine headlines and instead are adding more weight to the short-term impacts of the Pandemic making it harder for the NZD to maintain and build on recent upward momentum. Investors are attempting to price in the costs of a short-term economic retracement with Europe and the US imposing new restrictions to stop the spread of the virus ahead of a wider immunisation program. With global growth expect to fall sharply through Q4, the size and scale of the pandemic led recession will only worsen in the weeks and months ahead. Failure to deliver on fiscal supports in the US and Europe could force investors to unwind recent risk on moves and add some downward pressure on the NZD.

Attentions remain with the risk narrative and we expected the broadly positive tone to continue into next week at least.

Key Movers

The US dollar rose against a basket of major currencies for the first time this week as markets placed greater weight on short term headwinds. Fears the global economic retracement will only worsen in the weeks and months ahead weighed on risk demand. New restrictions in the US, led by the closure of face to face learning in New York Schools, created a risk off environment that drove equities and stocks lower and added demand to haven assets. The USD, CHF and JPY all benefited from the shift in sentiment, while the Euro crept marginally lower. Optimism surrounding recent vaccine headlines faded Thursday as the reality a widespread immunisation program won’t be available or complete until well into 2021 weighed on investors. Speculation further Fed easing will be introduced to boost activity helped ad a floor under the risk sell off there is growing demand for Fiscal stimulus to fill the gap between the worst of the pandemic and recovery when monetary policy will be most effective. With US fiscal stimulus bogged down by partisan politics and hiccups in the issuance of Europe’s rescue plan a broader risk off correction may take off. For now sentiment remains largely positive and we expect markets will maintain this bias in the immediate near term.

Expected Ranges

NZD/USD: 0.6830 - 0.6930 ▼

NZD/EUR: 0.5790 - 0.5850 ▼

GBP/NZD: 1.9020 - 1.9280 ▲

NZD/AUD: 0.9430 - 0.9530 ▲

NZD/CAD: 0.8980 - 0.9060 ▼