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New Zealand Dollar Burdened by Risk off Conditions as U.S.-China Head for Spat on Covid-19 Origin

- NZD loses ground as May gets underway
- Risk-off sentiment dominates markets
- Trump turns up rhetoric against China

Foreign exchange

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- GBP/NZD spot rate at time of writing: 2.0651
- Bank transfer rates (indicative guide): 1.9930-2.0080
- FX specialist rates (indicative guide): 2.00-2.0470 >> more information

The New Zealand Dollar is softer at the start of May courtesy of a flip in global market sentiment into negative territory, with investors eyeing a renewed bout of tensions between China and the U.S. and ongoing concerns stock markets remain substantially overpriced at a time of unprecedented economic contraction.

The New Zealand Dollar is a proxy for broader investor sentiment, tending to rise when markets are rising but fall when they lose value as is the case at the start of the new month.

"AUD/USD and NZD/USD have lost about 1 US cent in the past 24 hours. The contractions in economic activity in the Eurozone and the US in Q1 2020 released this week highlight the depth of the initial reaction of the lockdowns. Deeper contractions in Q2 2020 are widely expected because job losses will mount. The bottom line is the world economy will contract heavily in H1 2020," says Joseph Capurso, a foreign exchange strategist at Commonwealth Bank of Australia.

"A weak world economy will bear down on global‑linked currencies such as AUD and NZD," adds the analyst.

Markets were falling and commodity prices in retreat on May 01, with analysts saying a brewing confrontation between China and the U.S. is adding to the negativity already created by the collapse in economic activity, following U.S. President Donald Trump's comments overnight that he has evidence that covid-19 originated from a lab in Wuhan, China.

Trump says the evidence will be released in the near future, and based on its credibility we could see some notable geopolitical shifts as Western nations recast their relationship with China.

Media report Trump is considering an executive order to prevent an initial $50bn of government retirement savings funds flowing into China due to his growing belief Chinese authorities were responsible - even if inadvertently - for the covid-19 outbreak.

The government retirement savings are held in the Thrift Savings Plan, which is now obliged to transfer $50bn into Chinese capital markets as per an increased in weighting for China in the MSCI All Country World Index.

"This is likely to put a serious dent in the head-scratching, math-defying risk-on rally we have seen for much of the week. Indeed, now month-end positioning is out of the way it has the potential to open up an entire new phase of USD buying," says Michael Every, Global Strategist at Rabobank's Hong Kong branch.

In line with the risk-off sentiment, the Pound-to-New Zealand Dollar exchange rate was quoted nearly half a percent higher at 2.0651, a recovery from a multi-week low of 2.0280 which was reached on Wednesday.

The New Zealand-to-U.S. Dollar exchange rate was quoted half a percent lower at 0.6085, having been as 0.6176 in the previous 24 hours.

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GBP/NZD forecast