New Zealand Dollar Down on Covid Case as RBNZ Looms, SEC Warns on China

NZD/JPY, RBNZ, SEC China Warning, RBA, FOMC, US Economic Data – Talking Points

• New Zealand reports its first community Covid case since February
• RBNZ hawkish stance unlikely to remain with rate decision tomorrow
• Asian equities lower after SEC warning, risk off before data and FOMC minutes

The New Zealand Dollar led the way lower for risk currencies after a community Covid case in New Zealand’s largest city, Auckland, was reported and the country prepared to go into a lockdown. The RBNZ rate decision tomorrow now takes on heightened significance as the previous hawkish stance has been wound back by interest rate markets and it may have consequences for other central banks that had taken on hawkish rhetoric of late. While other risks were emerging, the high-octane risk indicators of NZD/JPY and AUD/JPY saw large declines and the risk-off sentiment was spreading though most equity indices in the region.

While Hong Kong’s Hang Seng Index (HSI) stocks benchmark started slipping on worries about China’s recent regulatory crackdown, the market really turned when US investors became cautious after SEC Chair Gary Gensler warned of the risks involved with investing in Chinese companies. A resurgence of Covid cases in Hong Kong saw the government tighten air travel restrictions, compounding the third down day in a row for local shares.

The RBA meeting minutes were also released today and as they are 2 weeks old, appear to be outdated given the steepening Delta curve in Australia. The RBA did provide the usual caveats around changing conditions and the market expects them to reconsider the previously announced winding back of asset purchasers at the next meeting in September.

Tonight will see the release of US retail sales and industrial production data, while Fed Chair Powell is due to speak later in the day.

NZD/JPY Technical Analysis

The New Zealand Dollar saw large declines against the Japanese Yen today as it crashed through the 200-day moving average and could potentially look to test the previous low at 75.25 if the current risk aversion environment were to persist for financial markets. The downtrend appears to be intact after today’s move, as the late May high of 80.20 has not been threatened by any of the rallies since.

NZD/JPY – Daily Chart

Chart Created in TradingView

--- Written by Daniel McCarthy, Strategist for DailyFX.com

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