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NZD surges on coat tails of Yuan revaluation

NZD - New Zealand Dollar

Much like its antipodean counterpart, the NZD recouped Monday’s losses throughout the domestic session on Tuesday before extending its upward run overnight. Having broken back through 0.72 US cents as risk sentiment steadily improved following Monday’s sell off, the NZD surged through 0.7250 after China’s central bank, the PBOC, announced an amendment to the Yuan’s midpoint value. The PBOC set the currency 1% higher than the previous fix, the biggest single move since the shift away from a fixed peg valuation in 2005. The NZD, much like the AUD, is often seen as a proxy for risk and the Yuan and investors scrambled to chase the NZD higher marking fresh highs at 0.7260.

Our attentions now turn to the Georgia State senate run off for near term direction. While we are beginning to see signs the current upturn may have been overdone, there is still scope for further near-term upside amid broader US Dollar weakness. Having broken 0.7250 an extension on toward 0.73 is certainly possible.

Key Movers

The Dollar recovery didn’t last long, with markets shying away from the world’s base currency following policy action from the PBOC and a broader correction in risk demand. Stocks advanced through trade on Tuesday as markets chased risk assets higher following the People’s Bank of China’s adjustment to the Yuan midpoint value. Added pressure came on heels of rising inflation expectations and a jump in oil prices, driving the USD lower against most major counterparts. Having fallen almost half a percent, the Dollar index now sits at levels not seen since April 2018 and appears poised to continue the 7% depreciation suffered though 2020.

The Euro and Japanese Yen both advanced against the Dollar, while Sterling bounced between 1.3560 and 1.36 before breaking higher leading into this morning’s open. While the GBP has managed to hold onto gains won in the wake of the 11th hour Brexit trade deal rising COVID-19 case numbers and calls for a 3rd nationwide lockdown could curb gains beyond 1.37 in the near term.

Expected Ranges

NZD/USD: 0.7150 - 0.7290 ▲

NZD/EUR: 0.5850 - 0.5930 ▲

GBP/NZD: 1.8680 - 1.8930 ▼

NZD/AUD: 0.9305 - 0.9390 ▼

NZD/CAD: 0.9150 - 0.9240 ▲