Daily Currency Update

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NZD, the flavour of the month

NZD - New Zealand Dollar

The New Zealand dollar outperformed its counterparts again through trade on Wednesday, extending gains and marking fresh two and a half year highs. While demand for risk stalled mixed US data sets forced the world's base currency lower and pushed the NZD back through 0.70 US cents, extending to intraday highs at 0.7015, its highest handle since June 2018. While Tuesday saw investors succumb to profit taking the NZD held onto gains today, trading sideways through the last few hours, bouncing between 0.7005 and 0.7015. With month end closing in the New Zealand dollar has enjoyed incredible upside, rallying some 6% as near-term retracement fears are outweighed by hopes for a 2021 rebound, strong domestic economic performance and business conditions and a broad revision of interest rate expectations. With markets no longer pricing in a move to negative interest rates in Q1 next year the NZD has outstripped most key counterparts advancing over 2.5 cents against the AUD, over 2 cents against the Euro and pushing 400 points against the Yen, a key risk indicator. With the risk narrative continuing to drive direction there is ample scope to suggest the NZD will hold onto recent gains, however, with any rapid appreciation a correction would not be surprising. Our initial year-end forecast expected the NZD would trade between 0.64 and 0.68 and while the recent correction in interest rate expectations has pushed the top end handle higher the Kiwi could well be overvalued. Attentions today turn to the FOMC’s meeting minutes and the ongoing evolution of the risk narrative.

Key Movers

The US dollar edged nearer 3-month lows on Wednesday, despite Tuesday’s risk on the rally running out of steam. Jobless claims increased last week as the near-term impacts of the COVID-19 pandemic weigh on the US economy. The virus continues to spread across the US with little signs of slowing down, forcing States and local governments to re-introduce social distancing restrictions. While consumer spending and business investment enjoyed strong gains through October, the worsening pandemic offers little hope a Q4 retracement will be avoided. AS investors prepare positions for the Thanksgiving Holiday weekend our attentions turn to the FOMC meeting minutes. Earlier this month the Fed discussed using bond and asset purchases to drive activity and support the economy through the pandemic, and we will be looking to the minutes for further guidance and any signal looser monetary policy may be introduced. More accommodating conditions will weigh further on the USD as investors look to equities and risk assets for a higher yield return.

Sterling made another bid to break above 1.34 falling short at 1.3390 while the Euro pushed back through 1.19 to touch new highs at 1.1930. With optimism a trade deal between the UK and EU could be announced before the end of the month, there is scope for both currency to enjoy further upside, with a breakdown in negotiations prompting a swift and steep correction. Our attentions today remain with COVID-19 and Brexit headlines for short term direction.

Expected Ranges

NZD/USD: 0.6880 - 0.7030 ▲

NZD/EUR: 0.5780 - 0.5920 ▲

GBP/NZD: 1.8980 - 1.9220 ▼

NZD/AUD: 0.9480 - 0.9570 ▲

NZD/CAD: 09020 - 0.9150 ▲