Waikato Covid-19 Outbreak Sparks Concern Ahead Of Auckland Alert Level Review

The announcement of snap lockdowns in parts of Waikato has applied some modest pressure to the NZ dollar as trading reopened this week. The kiwi still underperforms most of its G10 peers at the margin, but NZD/USD has ticked away from its early session low of $0.6933 and last sits at $0.6947, little changed on the day. The ongoing Chinese holiday and widespread holidays in Australia are set to limit liquidity today.

• New Zealand's fourth-largest city Hamilton and the surf town of Raglan, both located in the Waikato district, have joined Auckland at Alert Level 3. The decision to lock down the two cities came on the back of the detection of two community cases of Covid-19, which are connected to one another, but have not been linked to the Auckland outbreak. Raglan and Hamilton will be at Alert Level 3 for at least five days.
• As a reminder, the Cabinet will review Alert Levels in Auckland today. The detection of Waikato cases just one day before the review seems like a curveball for officials, but PM Ardern said Sunday that the new outbreak will be treated "distinct from what we're dealing with in Auckland." Speaking to TVNZ today, Ardern signalled that the Cabinet has options other than a straightaway level shift.
• Meanwhile, the RBNZ are set to deliver their monetary policy decision this Wednesday, with most analysts still looking for a 25bp OCR hike. The OIS strip prices a ~79% chance of such a move this week. NZD/USD 1-week implied volatility hit a fresh 7-month peak of 11.99% last Friday before easing off somewhat, as participants prepared for the MPC meeting.
• From a technical perspective, bears need a sell-off past $0.6860, which limited losses on Sep 29 & 30, to get some fresh momentum. The next layer of support is provided by $0.6805, which represents Aug 20 low. Bulls look for a rally above the 50-DMA at $0.7010 towards Sep 23 high of $0.7093.