A busy Tuesday morning for the MarketPulse team included a debate over what was the trigger with the overnight move with the New Zealand dollar. The headlines were plentiful overnight:
- New Zealand PM Ardern: Confirmed all areas outside of Auckland will leave coronavirus alert level 4 on Sept 1st, and move to level 3 on Sept 2nd
- New Zealand COVID cases fell for a second day from 53 to 49 new cases
- August ANZ Business Confidence declined from -3.8 to -14.2
- July Building permits Month over month fell from a revised 4.0% to 2.1%
- A magnitude 6.5 earthquake hit the Kermadec Islands region near New Zealand
All these headlines are important but were unlikely to be the primary driver with kiwi volatility. Given the timing of the currency volatility and after you analyze all the kiwi crosses, it appears that rally with the New Zealand dollar stemmed after AUD/NZD plunge below the 1.04 level. The timing occurred during one of the lowest liquidity times of day and likely punished options traders that were looking for the 1.04 level to hold. The plunge and paring of gains suggest algos and high-frequency trading systems took advantage of the illiquid conditions.
The New Zealand dollar is today’s best performing currency, with NZD/USD rising 0.8% to 0.7053.
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