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Kiwi consolidates losses after tough week

Monday 23 August, 2021

Daily Currency Update

The New Zealand dollar had a nervy Friday, hitting its lowest point since November 2020 at 0.6805 at one point before bouncing back sharply at the close to record a relatively flat 24 hours. Opening this morning at 0.6832, the Kiwi finds itself consolidating its losses after taking a beating throughout last week. Overall, it proved to be a tough week for the Kiwi as it plummeted 200 pips on a weekly basis. The impetus for the dramatic falls came from a variety of sources but domestically, the escalating Delta situation and subsequent lockdown did not help. Adding further downward pressure was the RBNZ decision to wait longer before hiking its policy rates, a result that surprised many. Moving off-shore, the Kiwi was also sold off as news of China’s weakening growth trajectory alarmed markets. Asian equities, commodities and currencies linked to China softened rapidly with the Kiwi no exception. The shift in expected global growth also had the dual function of spurring US dollar demand as a safe-haven currency which also added salt to the Kiwi’s wounds. Moving into a new week there is little on the domestic docket to drive direction. Momentum again will turn to the broader global growth narrative as well as Delta headlines locally.

Key Movers

The US Dollar Index grew 1.02% this week to open this morning at 93.46. Aided by souring risk sentiment and the subsequent flight to safe havens, the US dollar rallied impressively last week to hit a 9 ½ month high on Friday before retracing slightly ahead of the weekend. The broader global narrative of a straightforward post-pandemic economic recovery came unstuck last week as China’s Industrial Production and Retail Sales both came in at lower growth rates than in July. With global growth being highly correlated to the Chinese economy, the softer results rang alarm bells across markets which in turn saw a sell-off in commodity prices. The surprise results also saw risk sentiment about-turn and the greenback bid higher as investors sought the US dollar as a safe haven. Adding to US dollar strength was a hint that the Federal Reserve may look to scale back its monetary stimulus later this year. The minutes of the July policy meeting, released last week, showed ‘most’ officials were in favour of beginning tapering monthly asset purchases later this year. With little of note on todays macroeconomic docket for the greenback, attentions remain on the broader risk-off narrative ahead of GDP figures on Thursday.

Expected Ranges

  • NZD/AUD: 0.9515 - 0.9630 ▲
  • NZD/CAD: 0.8712 - 0.8817 ▲
  • NZD/EUR: 0.5805 - 0.5875 ▼
  • GBP/NZD: 1.9809 - 2.0046 ▲
  • NZD/USD: 0.6791 - 0.6874 ▼