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Kiwi bounces back as risk sentiment returns

NZD - New Zealand Dollar

The New Zealand dollar opens near 0.72 US cents this morning having eyed a break below 0.71 through trade on Thursday. Wednesday nights risk off shift continued through the Asian session, pushing investors toward treasuries and haven assets and the NZD toward intraday lows at 0.7107. Markets appeared rattled by a coordinated push from a group of retail traders targeting small cap stocks, prompting a squeeze on hedge funds and short-term selling. The S&P 500 lead losses across equity markets down 2.6%, before online trading platforms installed restrictions and the SEC announced it would begin monitoring suspicious and unusual activity. Normality returned overnight and risk demand gathered pace enabling the NZD to largely recoup losses, extending back toward intraday highs at 0.7197.

With little of note on today’ domestic docket we are keenly attuned to changes in the underlying market narrative. This week’s risk off shift was the first wrinkle in what has been a largely consistent market tone.

Key Movers

The US dollar failed to hold onto gains enjoyed on the back of Wednesday's risk off shift, instead it drifted lower as sentiment improved and demand for equities rebounded. Domestic data sets saw Q4 GDP expand at just 4%, well down on the Q3 surge and 2.5% down on Q4 2019. While grim reading, the soft print was hardly a surprise for investors given the resurgence in COVD-19 case numbers through the last 3 months of 2020. Despite little evidence the pandemic will end in the near term, early high frequency data sets suggest the promise of fiscal stimulus and the national vaccine roll out will prompt an uptick in activity through Q1. With US jobless claims down on last week there is a suggestion the USD downturn may have reached the bottom.

The euro climbed back through 1.21 as German CPI jumped in January and confidence in the euro area was better than first expected. While the single currency has struggled to extend back toward highs at 1.23 it remains relatively well supported above 1.20 for now. The big test for the common currency lies ahead, with growth forecasts suggesting the continent will be slow to recover from the COVID-19 pandemic, left behind by the UK and US, as disparities in vaccine roll outs begin to emerge.

Expected Ranges

NZD/USD: 0.7080 - 0.7230 ▲

NZD/EUR: 0.5850 - 0.5980 ▲

GBP/NZD: 1.8980 - 1.9220 ▼

NZD/AUD: 0.9320 - 09410 ▲

NZD/CAD: 0.9120 - 0.9230 ▲