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Souring risk sentiment forces NZD to give up gains

NZD - New Zealand Dollar

The first trading day of the year saw the NZD cut a wide berth as investors drove whippy price action on fluctuations in demand for risk. Buoyed by hopes the global economy will rebound throughout 2021 the New Zealand dollar rallied through the domestic session, extending beyond 0.72 to mark intraday highs at 0.7230. With the US dollar under pressure the NZD appears set for an assault on 0.7250 before concerns surrounding the upcoming Georgia senate race in the US and logistic delays hampering COVID19 vaccine rollouts spooked investors, prompting a run-on risk assets. The NZD tumbled back below 0.72 to touch intraday lows at 0.7154.

We expect the NZD will continue to enjoy sustained upside through Q1 as near term pressures on the USD a medium to long -term optimism prompt a prolonged push toward risk assets. That said the pandemic remains the specter haunting investors and hampering further rapid appreciation. Short term headwinds should counter recent optimism and may prompt a period of consolidation through the week ahead. Our attentions remain with the evolving COVID19 narrative and this weeks Georgia senate run off as critical risk events.

Key Movers

Having been driven to 21 month lows through the early part of the new year’s first trading session the US dollar rebounded overnight, recouping losses to close almost two tenths of a percent higher on the day. The worlds base currency plunged to lows not seen since April 2018 as record low interest rates, a burgeoning deficit and optimism the global economy will bounce back in 2021 prompted a run on the dollar and push toward risk assets. However, as the dollar appeared set to ring in the new year with another sharp downturn, investors appeared spooked by short term headwinds, giving up risk asset gains on a souring in risk sentiment. While the medium term forecast remains negative the specter of the pandemic and upcoming Georgia senate run off pose as significant risk events through the days and weeks ahead which could lend some short term support to the embattled USD.

Both the Sterling and Euro gave up early gains, trading down on the day. The single currency tested a break above 1.23 before slipping back below 1.2250 while Sterling fell sharply. Having touched 1.37 the Pound came under pressure as reports tighter lockdown measures will be introduced spooked investors, forcing cable back below 1.3575 to touch lows at 1.3557.

With investors appetite for risk souring throughout the day the Japanese Yen enjoyed gains against most counterparts, up 0.05% against the USD despite concerns rising COVID19 case numbers may prompt Prime Minister Suga to introduce a state of Emergency in Tokyo.

Out attentions remain with pandemic and the broader risk narrative.

Expected Ranges

NZD/USD: 0.7120 - 0.7230 ▼

NZD/EUR: 0.5810 - 0.5910 ▼

GBP/NZD: 1.8780 - 1.9030 ▼

NZD/AUD: 0.9305 - 0.9390 ▲

NZD/CAD: 0.9080 - 0.9220 ▲