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Kiwi outperforms most counterparts, punching back through 0.70 US cents

Wednesday 11 August, 2021

Daily Currency Update

NZD - New Zealand DollarThe New Zealand dollar outperformed the majority of major currencies through trade on Tuesday, buoyed by an incremental improvement in demand for risk. Global equities continue to test new highs, while commodities and commodity currencies looked to recoup losses suffered through last week's close and Monday. Yesterday we highlighted concerns surrounding the Delta variant as a key catalyst driving a cautious narrative, and while that remains very much in play is seems optimists won out today. An uptick across oil prices and other key commodities permeated commodity currencies as hopes demand will remain intact despite the pandemic backdrop were bolstered. We continue to see the NZD as fundamentally undervalued but acknowledge that until the market finds conviction in direction and the impacts of near-term global headwinds ease then we are likely to see the currency trade within a narrow handle, struggling to extend beyond 0.7090 and 0.7130.Attentions now turn to US CPI inflation. After Friday’s robust non-farm payroll and labour market report, sustained evidence of elevated prices will add more pressure on the Federal Reserve to bring forward a tapering in Bond purchases, possibly prompting a sell off across risk assets.

Key Movers

Commodity lead currencies outperformed on Tuesday, with the NZD, AUD and CAD topping the list of major currencies. The CAD in particular found support following a rebound in oil prices. Having plunged 4% on Monday, prices rebounded 2-3% on Tuesday as hopes demand will remain intact despite the impacts of the pandemic were bolstered. The USD dollar index remains largely flat as losses against the commodity currencies were offset by gains against the JPY, EUR and GBP. An improvement in risk sentiment forced the yen lower while the euro gave up 1.175 to test 1.17 touching lows at 1.1710 and the GBP touched lows at 1.3830. With little of note on hand to drive direction, investors appeared content sidling larger bets until after tonight’s US CPI inflation print. We anticipate some moderation in the headline read, but the devil will be in the detail. Leading indicators suggests input and supply constraints continue to plague the economy, and there is unlikely to be any reprieve from transitory inflation pressures. That said, any easing in Covid lead price increases, but a sustained price uptick could spark price action as expectations for few policies are adjusted.

Expected Ranges

  • NZD/USD: 0.6930 - 0.7070 ▲
  • NZD/EUR: 0.5910 - 0.5990 ▲
  • GBP/NZD: 1.9680 - 1.9920 ▼
  • NZD/AUD: 0.9490 - 0.9570 ▼
  • NZD/CAD: 0.8680 - 0.8820 ▼