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NZD collapses as Covid case derails RBNZ policy expectations

Wednesday 18 August, 2021

Daily Currency Update

NZD - New Zealand DollarThe New Zealand dollar sunk below 0.70 US cents Tuesday amid a broader souring in risk demand and news a positive Covid case detected in Auckland would trigger a nationwide lockdown. Having opened the day buying 0.7025 US cents, the NZD crashed through 0.6950 and 0.6925 to test supports at 0.69 after the Ministry of Health announced they had identified an individual who had contracted the Delta strain of COVID-19, plunging Auckland into an immediate 7-day lockdown. With 4 new cases reported overnight, the NZD has been lucky to hold onto supports with the outbreak coming at the worst possible time. Markets were preparing for the RBNZ to announce an amendment to its monetary policy program, increasing interest in an attempt to cool the overheated domestic economy. The snap lockdown prompted an immediate and perhaps outsized reaction as investors rushed to amend near term rate expectations. What was almost a guarantee is now 50/50 as the normally cautious RBNZ may choose to postpone an adjustment, allowing time to ensure normal activity resumes following a short, sharp lockdown. Our attentions today remain squarely affixed to the RBNZ rate announcement and evolving COVID-19 outbreak.

Key Movers

The USD tracked higher overnight, bolstered by a surge in risk demand in what was a more traditional response to a shift in risk appetite. Growing COVID-19 concerns both domestically and globally had the market on edge, and a sharp decline in US retail sales through July sent investors chasing haven assets. The dollar index advanced 0.5%, buoyed by a steep correction across the GBP and EUR, even extending through 109.55 against the Japanese yen. The euro plunged through 1.1750 to touch intraday lows at 1.1710 while GBP offered little resistance as it cruised through 1.38 and 1.3750, marking fresh lows at 1.3730. As the prolific spread of the Delta variant derails the global economic recovery, near term headwinds are finally overwhelming long held optimism for a full and swift economic rebound. Our attentions today turn first to the RBNZ policy update, then shift to GBP and Canadian CPI data ahead of the FOMC minutes.

Expected Ranges

  • NZD/USD: 0.6820 - 0.7050 ▼
  • NZD/EUR: 0.5850 - 0.6020 ▼
  • GBP/NZD: 1.9680 - 2.0050 ▲
  • NZD/AUD: 0.9450 - 0.9620 ▼
  • NZD/CAD: 0.8680 - 0.8830 ▼