New Zealand Dollar Aided by Lifting of Aukland Restrictions, Rising Global Markets

- NZD supported at start of new week
- Aukland restrictions lifted
- Rising global markets also aiding NZD

Above: File image of Prime Minister Ardern. Image © NATO, reproduced under CC licensing conditions, image cropped from original.

• GBP/NZD spot rate at time of publication: 1.9498
• Bank transfer rates (indicative guide): 1.8816-1.8950
• Specialist transfer rates (indicative guide): 1.9000-1.9323
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The New Zealand Dollar starts a new week underpinned by a supportive global environment of rising stock markets and commodity prices, while domestic news that lockdown restrictions in Aukland have been lifted will provide a further fundamental underpinning.

It was announced on Monday by New Zealand Prime Minister Jacinda Ardern that Auckland will move to Covid-19 alert level 1 at 11.59pm on Wednesday.

Ardern said the move was based on the belief that there’s a 95% chance the capital's cluster of cases has now been eliminated and follows ten successive days without community transmission.

The rest of the country moved to alert level 1 on September 22 and remains at level 1.

The Pound-to-New Zealand Dollar exchange rate is quoted at 1.9500, the Euro-to-New Zealand Dollar is at 1.7676 and the New Zealand Dollar-U.S. Dollar exchange rate is at 0.6640.

Despite the lifting of restrictions economists remain cautious of giving an all-clear for the economy given that New Zealand's borders to the rest of the world remain effectively closed, depriving the country of tourists, business travellers and students.

"A large share of New Zealand’s exports goes to Asia, leaving it exposed to a global growth slowdown. The mix of lower tourist arrivals, commodity prices and a dovish central bank will continue to weigh on the NZD, despite recent outperformance from improving risk sentiment," says Daniel Been, Head of G3 & FX Research at ANZ Bank.

The easing of lockdown measures on Aukland will mean restrictions on the size of gatherings will be lifted and commuters will not be required to wear masks on public transport, suggesting the economic gains to be realised from the loosening are unlikely to be massive.

"Mobility data seems to suggest that the time Auckland has been above Alert Level 1 hasn’t reduced activity as much as anticipated. Still, it’s not entirely smooth sailing for the domestic economy, and as we tick over into a new month and get that little bit closer to summer, it’s a reminder that the closure of the border is going to put a big dent in economic activity, even if we do end up with a trans-Tasman bubble at some point," says Jane Turner, Senior Economist at ASB in Aukland.

The Reserve Bank of New Zealand (RBNZ) remains cautious on the economic outlook to the extent that it is actively considering the implementation of negative interest rates. A rate cut to 0% or below is widely expected in the first half of 2021, an expectation that has weighed on the New Zealand Dollar and meant that the currency is one of 2020's developed market laggards.

"While domestic business confidence is showing improvement, the economy is not out of the woods. And while the RBNZ keeps new unconventional measures on the table, the environment will remain challenging for the NZD," says Been.

Expect global market sentiment to remain a key driver for the New Zealand Dollar, given the currency's traditional positive correlation with rising stock markets and commodity prices.

Markets started the new week in positive fashion amidst fading fears that the U.S. Presidential election in November will be inconclusive given challenger Joe Biden's ongoing rise in the polls.

The New Zealand currency is being tipped by analysts at ANZ Bank to see an improved performance into year-end, particularly if the Democrats make a clean sweep of Congress and the Presidency in the November vote.

"A Democratic sweep remains a key upside risk for the NZD, which would likely sow the seeds for a sustained period of global growth," says Rahul Khare, FX Analyst at ANZ in Sydney.

A new national poll showing President Donald Trump is now 14 points behind his challenger Joe Biden was released on the weekend, less than a month until the election day.

A NBC/Wall Street Journal survey indicating a 53-39% advantage for Biden. The poll was taken immediately after last Tuesday’s first presidential debate in Cleveland, at which an argumentative president constantly interrupted both his rival and the moderator Chris Wallace.

Polls have a consistent lead for Biden, and given that pollsters have adjusted their methodology to avoid missing Trump's 'hidden' support, markets are steady in pricing his victory.

Regardless, uncertainty will nevertheless remain a feature of the near-term timeframe with investors unwilling to shake the fear of a close result which could result in weeks of legal challenges, creating conditions for financial market weakness.