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The Week Ahead in FX Markets – Turmoil continues and the NZD suffers

Published March 23, 2020

By Phil Lynch

COVID-19 Update

In light of recent developments the EncoreFX New Zealand team is now working from home.

Our team is fully functional, and there is no disruption to our services. Where we would have previously met face to face with prospects and clients, we will now be making use of conferencing technology.

Any phone calls to EncoreFX landline phones will be automatically diverted to your dealers mobile. Alternatively, you can reach us anytime at

Back to Markets…

The RBNZ announced further action to help stimulate the New Zealand economy and ensure stability within financial markets, by implementing a Large Scale Asset Purchase Programme (LSAP) of New Zealand government bonds.

The Monetary Policy Committee made particular mention that heightened risk aversion has caused a rise in interest rates on long-term New Zealand government bonds and the cost of bank funding. This morning’s decision has seen the 10-year yield fall from 1.78% to 1.50% in early trading – or a fall of 0.28%. This move, therefore, has produced a result similar to a 0.25% cut in the OCR.

Practically, this means the RBNZ will purchase government bonds in the secondary market across a range of maturities. Ultimately, this gives New Zealand banks confidence they can access cheap cash which they can then lend on to businesses and consumers at low rates – helping to buffer the economy in this turbulence.

More information on the LSAP can be found here.

Global Markets

Global markets continue to struggle to come to terms with COVID-19. Immense amounts of volatility and uncertainty remain. Some of the staggering statistics include:

  • The Dow Jones Industrial Average has fallen 35% across five weeks
  • The NZX has fallen 25% in four weeks
  • West Texas Crude (Oil) has fallen 69% in eleven weeks
  • The NZD has fallen 16% in twelve weeks
  • The Volatility (‘Fear’) Index has jumped 341% in four weeks

What to Expect for the New Zealand Dollar

Expectations for the New Zealand dollar include heightened uncertainty and volatility, and not much else. Rather than trying to figure out which way the NZD will go next (or how far it will go), you should continue to mitigate FX risk in accordance with your plan. Currently, a critical factor is re-identifying your exposure levels, given the changes in demand within your business.

The closest we have to any sort of precedent of a period of uncertainty and volatility in financial markets was the Global Financial Crisis (GFC). During the GFC, the New Zealand dollar plunged 40% over the course of 51 weeks. Throughout the carnage, there were many ‘good weeks’ that quickly turned to further declines. The lowest level reached on the NZD was 0.4890. The NZD stayed below 0.6000 cents for about 8 months. Click the image below to enlarge.



However, the NZD did eventually bounce back – eventually climbing 56% across 33 weeks. To understand what we might expect, there are some other key factors worth considering. Predominantly:

  • Will New Zealand be able to contain COVID-19? A bad outbreak here would be devastating for our economy, but an effective containment could place New Zealand at a relative advantage in global markets.
  • How does New Zealand’s economy compare now vs 2008?New Zealand is relatively well placed to deal with COVID-19. We are geographically isolated, our primary industries (outside of tourism and education) are focused on food production, and New Zealand governments (both the current and former) have led New Zealand to a very low level of crown debt to GDP – allowing New Zealand to borrow and spend to support the economy.

The Week Ahead

Any economic announcements this week will be secondary to COVID-19 updates. It is worth noting the RBNZ OCR Decision due on 25 March was brought forward and announced last week, so there are no (further) scheduled decisions from the RBNZ this week.

One piece of data of interest is the ANZ Consumer Confidence report released on Friday at 10:00 AM – painting the most current picture of the mood of consumers.

Reviewing FX Positions

During these times, it is important to review your FX positions and ensure they are consistent with your expected level of business. If you are concerned about what this means for your business, contact us today.