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NZD test 0.70 amid USD weakness and a shift in as interest rate expectations


NZD - New Zealand Dollar

The New Zealand Dollar broke resistant briefly testing 0.70 US cents overnight amid broader US dollar weakness and a correction in interest rate expectations. The Kiwi shifted higher throughout the domestic session following an envoy sent from the Finance Minister to the RBNZ, highlighting the governments concern with recent housing prices and the impact of further interest rate reductions, suggesting house values should be part of future RBNZ remit. While the RBNZ remains an impartial institution and were swift to highlight house prices were a result of longer-term structural issues the letter prompted investors to all but price out a move to negative interest rates next year. The Overnight Cash Rate (OCR) is now expected to bottom out at 0.18% by mid next year. Pushing through 0.6970 the NZD enjoyed an added boost as risk appetite surged following confirmation President Trump will commit to and begin a transition to a Biden presidency. While the President was quick to point out the campaign would continue to contest the election result a peaceful and cooperative changeover removes a major risk barrier. Having touched intraday highs at 0.7005 the NZD has retreated marginally into this morning’s open and currently buys 0.6974 US cents.

Attentions today turn to the RBNZ financial Stability report and press conference. RBNZ Governor Orr will likely be questioned on yesterday’s events and his comments will provide greater guidance in understanding how the RBNZ intends to react to inflated house prices and what the policy impact will be. Any guidance indicating a shift away from looser monetary policy commitments could help the kiwi bust through resistance at 0.70.

Key Movers

The US dollar, Japanese Yen and Swiss franc all shifted lower overnight as risk sentiment surged and the narrative shifted away from short term headwinds after President Trump acknowledged the head of the General Services Administration should begin the transition to a Biden led government. While the President assured supporters they will continue to challenge the election result the removal of the threat of a hostile transition of power eliminates another risk barrier weighing on currency markets. The dollar index fell three tenths of a percent and closed in on Monday’s three-month low at 92.013. With key technical supports at 92 still intact another surge in risk sentiment and a break below this threshold could open the door to further declines and an extension in the downward shift.

With the Euro and GBP enjoying gains on the back of broader USD weakness attentions remain affixed to the ongoing risk narrative. With Brexit negotiations expected to yield at least a partial trade agreement as early as Friday another risk barrier could well be removed in the coming days opening the door for another assault on 1.20 for the Euro and a break above 1.34/35 for Sterling.

Expected Ranges

NZD/USD: 0.6880 - 0.7020 ▲

NZD/EUR: 0.5810 - 0.5930 ▲

GBP/NZD: 1.8980 - 1.9320 ▼

NZD/AUD: 0.9410 - 0.9540 ▼

NZD/CAD: 0.8980 - 0.9120 ▲