The AUDUSD opens at 0.6467 and the NZDUSD opens at 0.6056 this morning.
The Kiwi Dollar continues its grind higher, but it is really the Australian Dollar that is the big performer, breaking into new highs not seen since early March. It has recovered over 17% from it's lows, which is a pretty amazing move in only 5 weeks.
We are coming to a very interesting time in the markets. Historically the NZD and AUD are considered “Risk Currencies”. This means when there is a global panic, they are hit hard, but when things are looking good, you get the classic relationship, Stocks up, Gold down and Risk Currencies up. As we are coming out of the panic, the market is focusing specifically on New Zealand and Australia, and thinks they are going to come out of the Pandemic well, hence we have seen them increase markedly. This is where it gets interesting. Globally countries are starting to talk about coming out of lockdowns. For Australia and New Zealand, this seems justified looking at the successful containment of Covid-19. For somewhere like Italy though, they are talking about relaxing restrictions with 100k active cases, and still getting thousands of new cases per day. They are effectively coming out because they can’t stay in lockdown anymore, not because they have gotten on top of the virus.
If we see a second wave in Europe and the US as they relax restrictions prematurely, the question is what that will that do to global risk sentiment? It would clearly hurt it, but would the NZD and AUD respond as they normally do and sell off, or strengthen even more as their relative strength is enhanced even further? Our hunch is that we would see a sell off, but it would be very short lived, and a last chance for exporters to pick up cover.
Global equity markets are stronger, Dow +1.7% S&P 500 +1.8%, FTSE +1.6%, DAX 3.1%, CAC +2.5%, Nikkei +2.7%, Shanghai +0.3%.
Gold prices are off 0.6% to USD$1,715 an ounce. WTI Crude Oil prices are down 23% to $13.2 a barrel.