Kiwi underperforms as risk sentiment sours
Friday 16 October, 2020
Daily Currency UpdateThe New Zealand dollar broke Wednesday’s narrow band through trade on Thursday, forced back below 0.66 as risk sentiment soured and investors chased haven assets. The NZD was one of the days worst performers plunging 1% and touching intraday lows at 0.6576 as the currency followed equities and the AUD lower amid a risk off shift. A rapid increase in COVID-19 infections across Europe has seen the continent surpass the US in new daily infection numbers, an alarming signal the 2nd wave is fast getting out of control. Th UK and France led changes in social distancing rules, implementing new measures to try and curb the outbreak. As restrictions tighten again the fragility of the economic recovery is being highlighted and any hopes of a European led rebound have all but evaporated, prompting investors to reassess their expectations for global growth. The sharp correction in expectations coupled with a shift in optimism for US fiscal stimulus has fostered an uptick in risk led volatility. We expect the NZD will remain vulnerable to the broader risk narrative, vulnerable to a downward shift toward supports at 0.64 is sentiment sours further.
Attentions now turn to the upcoming general election this weekend. With Labour and Arden showing a commanding lead in the polls anything short of a shock upset would prove inconsequential.
Key MoversThe USD, JPY and CHF all trended higher through Thursday buoyed by the change in risk demand. The Dollar found support as rising COVID-19 infections, failed Fiscal stimulus negotiations and a downturn in domestic data sets forced investors away equities toward haven assets. Partisan politics has forced a correction in expectation for government COVID-19 relief, with a new support package now unlikely before the new year. Americans have been struggling with the economic shock driven by the pandemic without significant fiscal aid, weighing on consumer demand and sentiment, creating a deeper recession from which the country must climb out.
The Euro and GBP are both lower trading below 1.17 and 1.28. Brexit trade talks continue to yield little progress while increasing COVID-19 restrictions dampen any hope for a rebound in economic activity. With the EU leaders summit beginning today we will have a clearer picture whether Brexit talks will continue through the coming weeks, suggesting compromises have been made or abandoned and a hard Brexit becomes a reality. Watch for volatility into the close as markets adjust expectations as headlines filter through.
- NZD/USD: 0.6530 - 0.6680 ▼
- NZD/EUR: 0.5580 - 0.5680 ▼
- GBP/NZD: 1.9120 - 1.9880 ▲
- NZD/AUD: 0.9230 - 0.9340 ▲
- NZD/CAD: 0.8680 - 0.8760 ▼