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Despite pressure on commodity linked currencies, NZD holds up well, retaining recent gains. But risks are all to the downside

Currencies
Despite pressure on commodity linked currencies, NZD holds up well, retaining recent gains. But risks are all to the downside

By Kymberly Martin

The USD weakened against its European peers on Friday. ‘Commodity-linked’ currencies, including the NZD, underperformed, but held up reasonably well given the slump in global risk appetite.

The NZD/USD ended the week just below 0.7330.

The USD index showed a brief flurry of excitement following the release of the US payrolls report. But ultimately the USD sagged into the weekend, as the closeness of US election polls continue to weigh on the currency.

The Bloomberg USD index ended the week near 97.00, down 2.25% from its late-Oct highs, when the US election outcome appeared more clear-cut. Our global risk appetite index has slipped to 41%, its lowest level since late-June.

CFTC data for the week ending 1 November shows USD speculative net long positions rising again, after a bit of a hiatus the week before. Overall net longs versus G10 currencies lengthened to 173.2k from 163.7k, mostly on extension of EUR shorts. However, the EUR did ok for itself on Friday night. From 1.1090, it headed higher into the weekend, closing at 1.1140.

The GBP/USD also managed to hold onto some of Thursday’s upward momentum. It appeared to benefit from continued short covering in the wake of Thursday’s trifecta of GBP supports. Early on Saturday morning the GBP/USD made highs above 1.2550 (its highest level since 7 October), before ending the week near1.2520. The NZD/GBP ended the week at 0.5850, up from intra-night lows near 0.5820.

The NZD/USD was fairly range-bound on Friday night, though closing a smidge below 0.7330, a little below Friday morning’s level. A further slide in global commodity prices on Friday night did not help the NZD and its ‘commodity-linked’ peers (AUD, CAD). Overall however, they held up remarkably well given the slump in global risk appetite. The NZD/AUD has also held onto its recent gain, closing for the week at 0.9550.

The week ahead promises potential volatility for the NZD, given the US election and RBNZ meetings. Given the currency’s resilience to date, it may look vulnerable if there is a marked further fall in global risk appetite. For now, NZD/USD resistance is eyed at 0.7380, while support is seen approaching 0.7200.

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