Daily Currency Update

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Kiwi teeters on extending gains beyond resistance at 0.7120

NZD - New Zealand Dollar

The New Zealand Dollar failed again to break resistance at 0.7120 despite sustained US dollar weakness and a rosy domestic fiscal outlook. The NZD marked fresh highs at 0.7121 overnight, having trended steadily higher throughout the domestic session. Yesterday’s fiscal update showed the local economy was recovering much faster than first anticipated, allowing RBNZ bond purchases to be scaled back and tapered through the first quarter of next year. While there was little impact on rates, the news allowed investors to consolidate recent gains as previous expectations of prolonged QE and a shift to a negative OCR continues to fade. Having marked new highs, the NZD then retreated through the early hours of the morning, shifting below 0.7060 to touch intraday lows at 0.7055. Having gapped lower, the NZD began recouping losses as Fed Chair Jerome Powell stood steadfast behind the FOMC’s commitment to an accommodative monetary policy, adamant policymakers will maintain their dovish mandate. The NZD buys 0.7099 US cents at the time of writing.

Key Movers

The US dollar's woes continued through trade on Wednesday, battered by expectations a near trillion-dollar fiscal stimulus program will be available before Christmas and a shockingly sharp downturn in domestic retail sales. Reports US lawmakers have formed a COVID-19 relief bill that addresses the most egregious and contentious issues fuelled optimism and risk demand that drove investors toward risk assets and away from the US dollar. The downturn was compounded following a steep decline in consumer spending through November. Headline sales fell over 1% and are now well into negative territory, a clear signal that restrictions and changing individual habits are smothering normal economic activity.

Sterling outpaced major counterparts overnight, extending beyond 1.3550 as Brexit negotiations suggested progress had been made on key sticking points. It appears fishing rights remain the final barrier standing in the way of a full-fledged trade agreement, and we remain optimistic this will not derail negotiations and force a no deal divorce. With a no deal breakup avoided, the pound should enjoy ongoing upside through the end of the year and at the very least early 2021.

Attentions today remain affixed to both Brexit negotiations and fiscal stimulus headlines. Any sign these risk barriers have been overcome could provide the catalyst to push the dollar lower and allow the Euro to extend beyond 1.22, with risk assets like the AUD and NZD breaking resistance to test 076 and 0.7120 respectively.

Expected Ranges

NZD/USD: 0.6990 - 0.7150 ▲

NZD/EUR: 0.5780 - 0.5860 ▼

GBP/NZD: 1.8820 - 1.9180 ▲

NZD/AUD: 0.9330 - 0.9425 ▼

NZD/CAD: 0.8950 - 0.9090 ▲