Kiwi range bound in quiet start to week
Tuesday 26 May, 2020
Daily Currency UpdateThe New Zealand dollar offered little to excite investors through trade on Monday, maintaining a 25 point range bouncing between 0.6084 and 0.6109. Volume remained light with both the US and UK trading centres closed as investors enjoyed extended weekends, while an absence of headline news events helped ease the recent burden of volatility. Having escalated through Friday last week, fears new Beijing enacted security laws in Hong Kong would threaten social liberties eased on Monday as comments from top Chinese officials affirmed the one country/two systems policy would not be altered. The Hang Seng clawed back early losses to finish in positive territory, prompting a flow in of risk appetite through the European and North American trading sessions.
Risk continues to drive demand and as the prospect of a second wave of infections lingers investors will be reluctant in extending moves beyond recent highs at 0.6170. The H2 outlook remains vulnerable and despite optimism around the opening of the global economy the prevalence of the virus will ensure a swift rebound is unlikely. That said, New Zealand has enjoyed an extended period of zero of near zero new cases, prompting official to ease restrictions at a faster pace than first anticipated. With the prospect of a move to level 1 restrictions within 4 weeks, forward forecast could be upgraded. New Zealand has outperformed the majority of major counterparts when combatting the virus, virtually stopping the disease in its tracks. Its effective eradication from within its borders means the country will return to normal much faster than most, possible fueling upside as attentions turn away from risk and back to underlying macroeconomic performance.
Attentions today turn to Trade Balance data, ahead of tomorrow RBNZ financial stability report.
Key MoversPrice action remained muted through trade on Monday as the US and UK enjoyed long weekends. With volumes low and liquidity thin investors chose to sit on the sidelines through much of the day, squaring positions ahead of what promises to be a busy week ahead for policymakers, especially within the EU. The Euro steadied near 1.09, bouncing between 1.0870 and 1.0910 as markets eagerly await further detail surrounding the EU recovery fund. France and Germany are set to put forth their 500 billion Euro proposal to the EU commission on Wednesday with resistance from Northern States expected to hamper negotiations. Austria, Denmark, The Netherlands and Sweden are pushing for a loan-based system, balking at the idea of issuing grants to those economies hit hardest by the pandemic. Arguments surrounding joint debt obligations have intensified in recent weeks dividing Europe and threatening the longevity of the common currency. We expect the Franco-German proposal will not obtain majority approval with leaders forced back to the drawing board and the Euro pushed back toward 1.08/1.0750. A surprise approval will be Euro positive and could see the common unit test highs above 1.10.
- NZD/USD: 0.5920 - 0.6130 ▼
- NZD/EUR: 0.5550 - 0.5650 ▲
- GBP/NZD: 1.9780 - 2.0020 ▼
- NZD/AUD: 0.9270 - 0.9360 ▼
- NZD/CAD: 0.8480 - 0.8620 ▼