NZD continues to be threatened by the coronavirus disease. Following the initial outbreak, the risk-sensitive currency dropped out of favour with investors as the Chinese economy took a hit. Being so closely linked with Chinese trade, the New Zealand dollar plummeted, leading the way for others like CAD and AUD to follow. With NZD trading lower, currencies like GBP have managed to edge over it in their exchange rate pairings. Meanwhile, Wednesday’s Reserve Bank of New Zealand’s hawkish policy outlook saw NZD rise but its gains quickly turned to losses on Thursday as it lost traction and registered small losses.
Coronavirus Limits NZD Moving Forward
The coronavirus has limited the New Zealand dollar in recent weeks and has caused volatility in all of the risk-sensitive currencies. Following the outbreak, the market’s risk appetite switched to a risk-off mood. With investors flocking to safe haven currencies like USD, this meant that NZD was left out of favour with the market and plummeted. Fears have eased a little in the past week with China reporting a lower number of cases than the previous weeks, which has suggested a slowdown. But the market is bracing for the impact on the global economy that the virus will have in the weeks and months to come. The virus is still posing a global threat however, and there still is no known ‘cure’ for the disease which will still have investors cautious to jump back onboard with the risk-sensitive NZD.
Hawkish RBNZ Catches Investors Eye’s but Gains Are Short-Lived
This week saw the Reserve Bank of New Zealand’s policy outlook which gave off a hawkish tone. This helped the New Zealand dollar find support as the outlook from the central bank remained optimistic despite pressures from the coronavirus outbreak. Positive news came on Friday from New Zealand’s economic data, in the form of the Food Price Index in January which showed an increase of 2.1% following the previous months decline of 0.2%. However, the currencies gains are still set to be limited by the impact of the coronavirus. NZD will also be feeling the effect of Thursday’s losses which saw the currency lose traction after a relatively positive Wednesday.
Next week will see the New Zealand dollar’s global dairy trade (GDT) price index which could help NZD find some momentum. This aside, the currency has little data to go off for the next week and will likely remain fixated on the coronavirus events for cues moving forward.
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