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Kiwi outperforms as commodity currencies boosted

Thursday 24 June, 2021

Daily Currency Update

NZD - New Zealand DollarThe New Zealand Dollar outperformed through Wednesday, advancing against most major counterparts amid improved demand for risk and firming across commodity prices. While price action across bonds, equities and treasury yields remains largely muted, the NZD was able to extend beyond 0.70 to mark intraday highs at 0.7068 before shifting marginally lower into this morning’s open where it currently buys 0.7040 US cents. Markets ignored reports that Wellington has been thrust into level 2 COVID-19 alert after an infected traveller visited the city from Sydney over the weekend. Instead, the market focus remains affixed to the rejuvenation of the reflation narrative. It is clear now markets overplayed last week's price adjustment and with the NZD undervalued at the current handle, we expect a steady and measured recovery back to the level seen before the FOMC policy shift. We expect the NZD will slip back into ranges between 0.71 and 0.7315 with the main risk to this view the Delta strain of COVID-19. Should we see the Delta variant force another wave of lockdowns, particularly across Europe, the timeline of global recovery will be derailed, and the risk premia will require evaluation.

Key Movers

The dollar index edged marginally lower through trade on Wednesday, hampered by a renewed demand for risk and outperformance across commodity currencies. The euro enjoyed mixed fortunes rallying to intraday highs near 1.1970 after local PMI numbers touched their highest level in 15 years. Particularly encouraging was the outperformance across the services sector with service PMI catching up to manufacturing PMI for the first time since COVID-19 restrictions were introduced. The single unit failed to hold onto gains though shifting back toward 1.19 into this morning’s open. The Great British pound tested a break back above 1.40 as its own PMI data dump printed near record highs. Having given up ranges between 1.41-1.42 sterling appears to have settled into a post FOMC range between 1.39 and 1.40. We expect the currency will break this narrow handle as the reflation narrative gather momentum again. However, the emergence of the Delta variant across the country poses a concern for the recovery of the British economy and could derail our optimistic outlook. The JPY was the day’s big loser, giving up 0.3% and marking its lowest level since the beginning of the pandemic in March last year. Japan remains in the grips of a new COVID-19 wave and with a slow vaccine take up and ageing population anything outside an extended risk-off move will likely mean the yen remains under pressure through the months ahead.

Expected Ranges

  • NZD/USD: 0.6980 - 0.7120 ▼
  • NZD/EUR: 0.5850 - 0.5920 ▲
  • GBP/NZD: 1.9715 - 1.9980 ▼
  • NZD/AUD: 0.9250 - 0.9330 ▲
  • NZD/CAD: 0.8590 - 0.8710 ▲