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Kiwi falters on approach to 0.70 as strong US data forces retracement

NZD - New Zealand Dollar

The New Zealand dollar tracked lower through trade on Monday, forced off 2-year highs amid a USD uptick spurred by better than expected manufacturing data. Having crept toward intraday highs at 0.6970 the NZD fell sharply following the release of US Manufacturing and services data. Markit’s PMI numbers surged to touch five- and half-year highs forcing the kiwi below 0.69 US cents to touch 0.6899 despite stronger than anticipate domestic retail sales. Third quarter consumer spending jumped 28%, a huge advance on market expectations and another indicator suggesting looser monetary stimulus may not be required. Markets are beginning to place greater emphasis on relative economic performance and with the NZ economy, driven by the housing market, on track to rebound in 2021 there are calls for the RBNZ to revisit plans to move toward negative interest rates at the end of Q1. This correction in monetary policy expectations has been a crucial contributor to NZD upside in recent weeks, allowing the currency to enjoy strong gains against key counterparts, namely the USD and AUD.

Attentions today remain with the broader risk narrative but with ongoing US weakness anticipated through the end of the year we expect the NZD will continue to test new highs.

Key Movers

The US dollar advanced against a basket of major counterparts through trade on Monday, buoyed by a stronger than anticipated Manufacturing and services data print. Markit’s PMI report saw both sectors surge to their highest level since Q1 2015, defying the pressures of the pandemic and a lack of fiscal support. While investors typically ignore the data print, markets are becoming increasingly reactionary to real time economic performance as analyst attempt to measure the impacts of the COVID19 crisis and the time to recovery. The Dollar Index jumped over half a percent before creeping lower into Tuesday’s open.

The Great British Pound outperformed most counterparts, following stronger PMI data, vaccine hopes and optimism surrounding a EU trade deal. Service and Manufacturing PMI both enjoyed strong gains, while Oxford and Astrazeneca announced their vaccine trials showed similarly strong results when compared with Pfizer and Moderna, suggesting a 90% efficacy. With hopes vaccines will promote a return to pre-covid norms in 2021 focus turned to UK and EU Brexit negotiations. The Irish PM suggested they were closing in on a deal while Chief UK and EU negotiators suggested that while current areas of divergence remain a stumbling block the roadmap for a deal could and should be laid as early as the end of the week. Sterling surged to test 1.34 before retreating into this morning open. Attentions this week remain with Brexit negotiations. Even a partial trade agreement will lend Sterling and the Euro short term upside support.

Expected Ranges

NZD/USD: 0.6880 - 0.6970 ▼

NZD/EUR: 0.5780 - 0.5860 ▼

GBP/NZD: 1.9020 - 1.9380 ▲

NZD/AUD: 0.9470 - 0.9540 ▲

NZD/CAD: 0.9010 - 0.9120 ▼