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Kiwi holds onto 0.70 as all eyes turn to RBNZ on Thursday

Tuesday 17 August, 2021

Daily Currency Update

The New Zealand dollar gave up highs near 0.7050 to test a break back below 0.70 US cents amid softer Chinese data and heightened COVID-19 concerns. Chinese Industrial Production, retail sales and fixed asset investment all fell in July while the unemployment rate rose, fostering fears tighter lockdown measures introduced to contain the spread of COVID19 could derail the Chinese economic recovery. A slowdown across the world's second largest economy coupled with worsening supply chain blockages and broader regional and global Covid concerns sparked by the prolific spread of the Delta variant have all but extinguished hopes for a 2021 global economic recovery. We expect these near-term headwinds will continue to weigh on the NZD, capping upside. That said, New Zealand remains one of a few countries not facing domestic pandemic concerns. The economy has bounced back swiftly from the first wave in 2020 and so far, the country has successful suppressed entries of the Delta virus. With expectations the RBNZ will raise interest rates on Thursday to avoid the economy overheating there is scope to suggest the NZD will find demand as a high yield play or carry trade. At the very least there should emerge could opportunities across key crosses, namely the AUD, CAD and Euro as diverging monetary policy expectations favour the NZD.

Key Movers

The US dollar tracked higher through trade on Monday, buoyed by a decline in risk demand. Markets adoption of a cautious approach helped fuel an uptick across haven assets allowing the USD to extend gains against most major counterparts. With copper and oil prices sliding between one and one and a half percent the dollar advanced against commodity lead units while forcing the Euro back below 1.18 and the GBP below 1.3850. Growing concerns surrounding the spread of COVID 19 and rising geo-political tensions, sparked by the Taliban’s shockingly swift reprisal have power have combined to douse demand for risk assets and helped prop up the dollar leading into today’s core retail sales data and Thursday FOMC meeting minutes. We expect markets will continue to adopt a wary approach, narrowing price action in the absence of a new catalyst for direction.

Expected Ranges

  • NZD/USD: 0.6980 - 0.7070 ▼
  • NZD/EUR: 0.5920 - 0.6020 ▼
  • GBP/NZD: 1.9580 - 1.9820 ▲
  • NZD/AUD: 0.9520 - 0.9590 ▲
  • NZD/EUR: 0.8790 - 0.8920 ▼