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NZD extends beyond 0.72 as mood for risk improves

NZD - New Zealand Dollar

The New Zealand dollar continued the week's upturn, pushing through 0.72 US cents amid an upswing in risk sentiment. A surge in equities dragged commodity currencies higher as a string of stronger than expected US data helped drive optimism in the wake of Biden’s inauguration. The NZD touched intraday highs at 0.7225 before a correction in the risk narrative and profit taking forced the currency back below 0.7180 to intraday lows at 0.7179. The NZD has enjoyed a series of higher highs and higher lows this week, suggesting buyers have again wrested control of direction. That said, following the upswing at the end of 2020 gains have moderated and resistance on approach to 0.7250/0.73 remains intact. Our attentions today turn to Q4 CPI inflation data for direction into the weekly close. We anticipate price pressure will remain low with greater emphasis on European and US PMI data. Lockdowns through November and December across the Northern Hemisphere suggest a downturn in manufacturing and services activity. A stronger than anticipated print will fuel optimism for a H2 recovery and drive risk assets higher into the weekend.

Key Movers

The dollar index was weaker this Thursday, soured by an upsurge in demand for risk. While losses have been modest it marks the fourth consecutive daily depreciation as markets again drift away from concerns surrounding short term COVID-19 headwinds and instead look to the medium and longer term recovery as a source of optimism. The S&P 500 marked new record highs overnight while the NASDAQ enjoyed strong gains on the back of outperformance across the tech sector. Jobless claims slowed, although remain shockingly high with 900,000 Americans filing for state unemployment benefits last week.

The euro edged higher pushing off lows approaching 1.20 to extend beyond 1.2150. THE ECB left its policy setting unchanged while ECB president Christine Lagarde expressed hope the “roll-out of vaccines allows for greater confidence in a resolution to this health crisis”. While Lagarde did point to a higher euro as a marker of inflation concern she offered little to surprise markets allowing the single currency to capitalise on broader USD weakness.

Our attentions now turn to a slew of Services and Manufacturing PMI’s across the US and Europe as key markers of growth. With concerns euro-area growth will remain stagnant post recovery a significant divergence in January PMI’s could add downward pressure on the shared unit and afford the USD some much-needed support.

Expected Ranges

NZD/USD: 0.7120 - 0.7230 ▲

NZD/EUR: 0.5890 - 0.5970 ▼

GBP/NZD: 1.8920 - 1.9180 ▲

NZD/AUD: 0.9240 - 0.9305 ▲

NZD/CAD: 0.9020 - 0.9130 ▲