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Kiwi makes fresh 30 month high as it eyes a break above 0.71

NZD - New Zealand Dollar

The New Zealand dollar made fresh 30-month highs through trade on Wednesday, extending beyond resistance at 0.7050 to touch 0.7085 amid broader USD weakness. Hopes of a bipartisan fiscal stimulus package to be made available before the new year forced the world’s base currency lower as investors continued to shift towards traditional risk assets. Equities, emerging market and commodity currency all enjoyed strong gains before partisan politics again dampened hopes and forced the NZD back toward 0.7060. Having given up the daily high, the NZD came under added pressure as markets absorbed comments from RBNZ Governor Orr. Orr downplayed the success of the recovery to date and very much left a shift to negative interest rates on the table. Despite more data highlighting robust housing market growth, Orr reiterated the banks focus was on medium and longer-term outcomes and its decisions would always depend on the context and efficacy at the time. Markets had largely shifted away from an expectation for negative interest rates and while yesterday’s comments weren’t particularly market moving, a revision in expected monetary policy outcomes could weigh on the NZD through the short term.

Key Movers

The US dollar marked fresh 2 ½ year lows on Wednesday as the surge in risk demand following renewed US fiscal stimulus hopes continued. A bipartisan proposal for a 908 billion relief package bolstered risk demand on Tuesday and continued to drive investors away from the US dollar. Having touched lows at 91.10 the dollar did find some support after Chuck Schumer rejected a Republican Party counter plan. Partisan politics continues to prevent fiscal stimulus from reaching those who really need it and while a compromise seems closer now than before the election there is still a significant gap between the near trillion dollar plan proposed by the Democratic Party and 500 billion dollar package proffered by the Republican Party. Until a deal is reached, the USD may find support as sentiment ebbs and flows on stimulus headlines while the long-term downtrend is expected to remain intact.

The Euro extended gains toward and through 1.21 amid US dollar weakness marking highs at 1.2110, its highest level since April 2018. A turning COVID-19 tide, vaccine hopes and the promise of fiscal stimulus in the new year have combined to drive a resurgence in demand for the shared unit. However, with the ECB previously signalling a desire to stem any rapid appreciation our attentions turn to next week's ECB policy meeting for any signs the bank will intervene.

The Great British Pound retreated, unable to capitalise on USD weakness as Brexit negotiations reach a critical juncture. With key sticking points still unresolved, investors are beginning to question whether a deal will be reached in time. Having given up gains above 1.34 Sterling currently buys 1.3364.

Expected Ranges

NZD/USD: 0.6980 - 0.7090 ▲

NZD/EUR: 0.5780 - 0.5880 ▼

GBP/NZD: 1.8780 - 1.9030 ▼

NZD/AUD: 0.9480 - 0.9590 ▼

NZD/CAD: 0.9090 - 0.9160 ▼