Kiwi Licks Wounds After Hawkesby Comments, Broader Risk-Off Flows

Topsy-turvy gyrations in risk appetite drove the kiwi's price action Tuesday. The NZD took a hit in early trade after a round of comments from RBNZ Asst Gov Hawkesby prompted some unwinding of tightening wagers. Improving sentiment allowed NZD/USD to erase its initial losses into the London morning. The rate then sold off sharply into the WMR fix, having a look below the $0.7000 mark for the first time since Aug 31, amid a fresh bout of risk-off flows. The kiwi finished the day as the worst G10 performer as a result, while NZD/USD closed below its 50-DMA for the first time in almost a month.

• NZD/USD trades at $0.7007 at typing, virtually unchanged on the day. The closure below the 50-DMA has been encouraging for bears, who now look for a further sell-off past the 50% retracement of the Aug 20 - Sep 3 rally/Aug 30 low at $0.6988/87. Conversely, bulls need a rebound above Sep 10 high of $0.7156 to get some reprieve.
• The OIS strip prices ~24bp worth of tightening at the RBNZ's next monetary policy meeting slated for Oct 6 as we type. NZD/USD 2-week implied ATM volatility (it now covers the RBNZ meeting) jumped this morning and sits at 10.10%, the highest level since Aug 20.
• Director-General of Health Bloomfield clarified that the "elimination" of Covid-19 and moving back to Alert Level 1 is possible and does not necessarily mean "a series of zero cases". He added that the low number of cases makes it virtually impossible to model the reproduction rate at this point.
• On the data front, participants await Friday's release of August trade balance.