Risk on drive helps Kiwi shrug off move below 0.70
Daily Currency Update
NZD - New Zealand Dollar
The New Zealand dollar jumped higher on Thursday, emboldened by renewed demand for risk amid easing concerns surrounding embattled property giant Evergrande. Having touched intraday lows at 0.6980 through the middle of the Domestic session, the Kiwi surged back through 0.70 US cents marking intraday highs just shy of 0.71 touching 0.7090. Reports Evergrande has been instructed to avoid default on its upcoming USD bond coupon helped fuel expectations authorities will step in and rescue the beleaguered developer. Although no official statement has been made, mere rumour was enough to jolt investors back toward risk assets.
The NZD remains well below our current fair value estimates and an ongoing surge in risk appetite should see the currency shift back toward 0.72 - 0.74. However, a lack of conviction across currency markets and ongoing risk events will likely weigh on the currency through the near term, with moves above 0.71 and 0.7170 met with resistance. With little of note on today’s agenda we expect the NZD will maintain support on moves approaching 0.70 and struggle on extension above 0.71.
Key Movers
A risk on drive drove gains across emerging and commodity led currencies through trade on Thursday, forcing the USD and JPY lower. The Dollar index suffered a chunky fall, giving up 0.4%, while the yen was the days worst performer and only unit to give up ground to the USD, tumbling 0.4% while suffering a sharp correction across a number of key crosses. The NZD jumped back to 78 up from 76.75 against the yen, while the AUD surged back above 80.50 against the yen, having opened below 79.30.The Great British pound enjoyed a strong uptick, bouncing back through 1.37 to test 1.3750. The Bank of England, while leaving policy unchanged, appeared to suggest an interest rate hike before the end of the year could be possible. A statement noted that a tightening of monetary policy should be implemented by an increase in bank rates, regardless of any ongoing government bond asset purchase programme. Recent transitory inflation pressures had strengthened the case for a move on interest rates. Markets jumped on the statement, pricing in a 15-basis point increase by February.
With little of note on today’s agenda our attention remains with the underlying risk narrative. A sustained improvement in risk sentiment could see the USD unwind recent gains.
Expected Ranges
- NZD/USD: 0.6980 - 0.7150 ▲
- NZD/EUR: 0.5920 - 0.6070 ▲
- GBP/NZD: 1.9290 - 1.9550 ▼
- NZD/AUD: 0.9630 - 0.9730 ▲
- NZD/CAD: 0.8870 - 0.9020 ▲