Daily Currency Update

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Kiwi firmly range bound as currency markets divorced from broader risk narrative

NZD - New Zealand Dollar

The New Zealand dollar gave up recent gains overnight, forced back toward 0.7150 amid broad USD strength. Having pushed through 0.72 early on Thursday, the NZD suffered a steady retracement through the rest of the domestic session and overnight, marking fresh 24-hour lows at 0.7149. The NZD is firmly entrenched in a narrow range between 0.71 and 0.7250, failing to benefit from this week’s resurgence in risk demand. Much like the AUD, the kiwi appears suddenly divorced from the broader risk narrative as gains across equity markets and other risk assets fail to correlate within currency markets. Having enjoyed strong gains through the final few weeks of 2020, risk appetite has moderated through 2021 as analysts and investors adjust expectations for recovery. Hopes the global economy would be on track for H2 are fading as COVID-19 variants and slow vaccine roll outs push back the timeline for a return to normal activity. New Zealand has been a leader in its handling of the COVID crisis and its domestic economy has rebounded at a faster pace than expected. However, its reliance on international travel and key export markets will likely mean short term gains are capped for now.

Our attentions turn to tonight’s non-farm payroll print in the US as the primary driver of direction into the weekend.

Key Movers

The revived US dollar maintained its recent upward momentum through trade on Thursday as markets continue to adjust previously shorted positions. Despite a resurgence in risk demand this week, the dollar advanced against all major counterparts, bar the Great British pound, pushing the dollar index another half percent higher overnight, marking the highest close since the end of November. Dollar demand was helped by ongoing euro downside as the common currency was again under pressure Thursday slipping below the psychological 1.20. Speculative repositioning on the back of a sluggish vaccine roll out has seen the euro shift sharply off highs above 1.23 toward an overwhelming bearish bias. There is an expectation Europe's slow pace of immunisation will see it struggle to keep pace with both the UK and US, prompting further divergence in growth expectations as the recovery builds momentum. The Great British pound outpaced all majors, buoyed by an upbeat Bank of England (BoE) tone. The BoE proffered an optimistic outlook, suggesting the vaccine roll out and easing COVID case numbers would prompt a rapid economic recovery. While the Bank insisted regulators prepare the industry for negative rates, market expectations for a rate cut were tempered with less than 4 basis points of cuts priced in through the next 12 months. Having touched intraday lows at 1.3575 ahead of the policy update, sterling surged back through 1.3650, stopping just short of a break above 1.37.

Our attentions today turn to US non-farm payroll numbers. With weekly unemployment claims uncomfortably high, this months print will afford a valuable insight into the health of the US labour market, decimated by COVID-19.

Expected Ranges

NZD/USD: 0.7100 - 0.7250 ▼

NZD/EUR: 0.5910 - 0.6020 ▲

GBP/NZD: 1.8820 - 1.9220 ▲

NZD/AUD: 0.9390 - 0.9480 ▼

NZD/CAD: 0.9120 - 0.9230 ▼