New Zealand Dollar Talking points:
- The New Zealand Dollar weakens as virus fears continue risk-off sentiment
- Fed rate cut fails to see temporary NZDUSD strength continue
- Risk reversals show traders positioned for further downside risks
Kiwi weakness appears set to continue this week as the New Zealand Dollar broke through a multi-year low against the US Dollar earlier this week. NZDUSD saw a modest, but brief jump this morning following an emergency 50 basis rate cut from the US Federal Reserve. The unexpected move from the Fed briefly lifted risk aversion across markets before giving way to risk-off sentiment.
NZDUSD (5-Min Chart)
The RBNZ is set to meet on the 25th of this month and markets are pricing in an increased chance for deeper cuts than last week, but still fall short of pricing in two full cuts. Still, the increased chance for more easing from the RBNZ is not helping Kiwi weakness as traders continue to shift positions out of risk sensitive assets and currencies.
NZDUSD (Weekly Chart)
Weakness looks set to continue with the spread of the coronavirus, now formally named Covid-19, continuing across the globe. Fears over a worldwide pandemic have sparked worry from global policy makers and central bankers alike, although fiscal stimulus measures have lagged its monetary counterpart.
However, Grant Robertson, New Zealand’s Finance Minister said last week that the government could ease fiscal policy in the upcoming May budget. The Finance Minister also said that New Zealand’s economic fundamentals remain strong. Echoing that call, home prices for February increased 5.3 percent, bolstering evidence that the countries housing market is continuing to improve on the back of lower rates.
Risk reversals, which measure the difference between implied volatility of calls and puts, is showing continued expected downside from traders. The various risk tenors displayed in the chart below displays traders positioned for a downside move over the next few weeks and months in the NZDUSD cross.
–Written by Thomas Westwater, Intern Analyst for DailyFX.com
Contact and follow Thomas on Twitter @FxWestwater