NZD dollar plunged during the Asian session today after the first Covid-19 case since February was reported in New Zealand. While it is just a single case, a context is needed to understand the move in the markets. When Covid-19 pandemic began, New Zealand authorities were quick to impose lockdowns and restrictions in order to combat spread of the virus. Plunge in NZD was triggered by concerns that similarly severe actions will be taken this time… and those concerns were fully justified. New Zealand Prime Minister Adern announced that the country will head into a 3-day nationwide lockdown, while cities of Auckland and Coromandel will head into a 7-day lockdown, starting tonight.
Situation gets even more interesting given that the Reserve Bank of New Zealand is set to announce policy decisions tomorrow at 3:00 am BST. RBNZ was expected to begin a rate hike cycle soon and the question is whether the new lockdown will impact its decisions. Interest rate derivatives market is currently pricing in a 76% probability of a 25 basis points rate hike tomorrow. This probability stood at 114% yesterday, meaning that the market was considering a possibility of a 50 basis points rate hike.
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New Zealand dollar is trading lower against all major currencies. Taking a look at AUDNZD chart, we can see that the pair has bounced off the 1.0415 area, marked with the low from the turn of November and December 2020. The pair approaches the first near-term resistance zone, marked with the 23.6% retracement of the August-December 2020 downward move (1.0560). Next resistance levels in-line are marked with 38.2% and 50% retracement.