Kiwi Capitulates After Covid Case In Auckland Community Puts NZ On Alert

The kiwi tumbled after New Zealand health officials reported a positive Covid-19 case in Auckland community. The news came after it emerged that the Delta variant spread among people staying in a managed isolation facility after their doors were simultaneously opened for just a few seconds, although there is no known link between the two events as of yet. The impact of these headlines was amplified by the proximity of RBNZ monetary policy meeting, which had been widely expected to mark the beginning of the tightening cycle. The OIS strip now prices 19bp worth of tightening come the end of tomorrow's meeting, which puts implied odds of a full 25bp hike at 76%.

• NZD/USD tanked to its lowest point since Aug 2 amid panic selling of the Kiwi dollar, while NZD/USD overnight implied volatility surged to 19.44%, its highest level since March 17. AUD/NZD surged off multi-month lows in tandem with an aggressive bounce in Australia/New Zealand 2-Year swap spread.
• The Antipodean cross advanced even as AUD went offered in reaction to the minutes from the RBA's latest monetary policy meeting, which noted that the Board "considered the case for delaying the tapering of bond purchases to A$4bn a week currently scheduled for September 2021". The post-minutes downswing in AUD/USD was boosted by a technical break of $0.7316, which represents the low print of Aug 10. AUD was the second-worst G10 performer.
• Participants retreated into safe havens as Covid-19 angst and China's continued regulatory crackdown soured risk appetite.
• Looking ahead, comments from Fed's Powell & Kashkari will grab attention today, while the data docket features U.S. retail sales & industrial output, UK jobs data and flash EZ GDP.