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NZD undone by COVID concerns and cyberattacks

Tuesday 20 July, 2021

Daily Currency Update

The sell off across equities, commodities and risk assets continued on Monday amid an ongoing deterioration in risk appetite. Heightened fears the accelerated spread of the Delta variant will derail the global economic recovery have forced investors to retrace the reflation narrative and chase safe haven plays. The New Zealand dollar lost 1% through trade on Monday, plunging below back below 0.70 US cents to touch 0.6922, just above last weeks yearly low. The burgeoning spread of the delta variant, even among countries with high vaccination rates is alarming. The UK, US and Europe have all reported a surge in COVID 19 numbers and while this particular strain appears not to have developed a resistance to existing vaccines those swathes of the population that remain unvaccinated are increasingly vulnerable as hospital admission and deaths begin to rise. With the virus spreading largely unchecked among developing countries there is real concern new and more virulent variants will emerge. While the NZD appears well supported on moves approaching 0.6920 an increasing deterioration in demand for risk could further derail the currencies recovery toward fair value above 0.73. With the RBNZ tipped to raise interest rates next month the recent shift in risk demand could see policy makers postpone the decision, adding further downward pressure on the NZD.

Key Movers

Safe Haven currencies were the big winners on Monday with the Japanese Yen and USD outperforming major counterparts. The Yen was the days top performer buoyed by the accelerated deterioration in the global risk backdrop while the USD index advanced 0.3%. The Great British Pound slipped below 1.37 to mark new intraday lows at 1.3660 as concerns the re-opening of the economy at the weekend will accelerate the spread of the delta variant and again overwhelm the NHS. The Euro appeared surprisingly resilient to the risk sell off, enjoying a quasi-safe haven status and hanging on near 1.18. As investors positioned for the Delta variant the risk backdrop took a further hit when the US blamed Chinese hackers for a cyberattack on Microsoft emails in March. With the UK, EU, Australia, Japan, New Zealand, Canada and NATO adding their support to the US claims tensions between the US and China and Australia and China are likely to deteriorate further. Our attentions today remain with the evolving risk narrative

Expected Ranges

  • NZD/USD: 0.6880 - 0.7050 ▼
  • NZD/EUR: 0.5830 - 0.5930 ▼
  • GBP/NZD: 1.9580 - 1.9850 ▲
  • NZD/AUD: 0.9380 - 0.9480 ▼
  • NZD/CAD: 0.8790 - 0.8910 ▲