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

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.