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Near-term downside risks remain, due to dovish shift by Reserve Bank of New Zealand (RBNZ) and emerging second COVID wave in New Zealand. NZD/USD is extending the previous day’s sharp retracement slide from near two-week tops, trading around the 0.6530 mark, and a break below 0.6520 will cheer bears up, per Westpac.

Key quotes

“NZD/USD continues to look toppish but requires a break below 0.6520 to get excited about the bearish case. Such a break would signal 0.6300.” 

“Recent events have been negative for the NZD: the Auckland region lockdown, and the dovish shift by the RBNZ last week. On that shift, the RBNZ expanded its QE program, and signalled a lower OCR/low-cost bank loan package could be ready by November for potential deployment. NZ interest rates have fallen, and will probably continue to do so since markets have so far priced a 30bp fall – well short of the 75bp cut Westpac is forecasting.” 

“NZD/USD falls may be limited since we remain bearish on the USD. Greater underperformance will be seen vs the AUD.”