NZD/USD trades up 0.8% to 0.6945
Remarks by RBNZ policymaker Christian Hawkesby earlier in the day (↑) have been a key factor in propping the kiwi up in European morning trade.
He was speaking on behalf of the central bank and those are some hawkish undertones conveyed, as to reflecting how policymakers are feeling about New Zealand’s economic prospects and the threat posed by the virus situation.
His comments pretty much ticks all the hawkish boxes and dials down any perceived dovish stance that may be taken up by the RBNZ for the time being:
- They only chose not to hike the OCR due to the optics amid a nationwide lockdown
- They were even considering a 50 bps rate hike if not for the last-minute curveball
- They view that lockdown only delays consumption, not eliminate it entirely
- They won’t be basing policy decisions solely/tightly off COVID-19 risks
All that being said, a larger epidemic in New Zealand will arguably outweigh everything else that Hawkesby is fiercely proclaiming above.
He is pretty much discarding the possibility of New Zealand turning into a similar situation as seen with New South Wales in Australia. And I don’t imagine how he can be any certain of that given the situation in the past few days.
The week-old COVID-19 outbreak in the country has now seen 148 cases (and still counting), already topping their initial forecast of somewhere around 100-120 cases.
Local authorities are doing a good job in linking the cases and what not but the risks should not be understated. As much as the latest take by Hawkesby is bolstering the kiwi, it isn’t a given that the RBNZ will be able to stick with this script come October.
A lot will ride on how the virus situation plays out in the coming weeks even though Hawkesby maintains that COVID-19 risks are not a key factor. But if a larger epidemic is observed, the optics will once again surely get in the way of the RBNZ.
Going back to the NZD/USD chart, buyers are now in near-term control on a break above the 200-hour moving average (blue line). That’s a good return in upside momentum after what looked to be a bit of a nosedive after falling past the July low at 0.6880.
For now, there is some minor resistance around 0.6947 from the 50.0 retracement level of the latest downswing but buyers will be hoping to ride on calmer risk tones and flagging dollar sentiment ahead of Jackson Hole to target 0.7000.