NZD/USD: Bears step in below 0.57 handle, US dollar marks up fresh highs

NZD/USD is currently trading down by over 1% on Friday in early Asia as the US dollar takes on fresh highs in highly volatile FX markets pertaining to the COVID-19 global financial and commodity market takedown. NZD/USD has travelled between a high of 0.5916 and 0.5469 since yesterday's Asia session, correcting off the lows but now starting to fall again. 

• RBNZ re-establishes US dollar swap line with Fed, will US dollar liquidity up to $30bln

NZD/USD has traded in significant volatility spanning a 4+ cent range and those seeking a bottom could be disappointed. "Tempting as it is to say NZ higher rates and steeper curves might lend it a hand, they’re more a sign of stress and we think large-scale QE here is inevitable, and that should help contain the topside," analysts at ANZ Bank argued. 

Eyes on USD

An 11-year low was made as the US dollar embarks on the 2016/17 highs 103.56/82 while the demand for dollar liquidity continues to prop the DXY and weighs on the dollar-bloc currencies, such as the Kiwi. The question now is whether the US dollar will be accepted by global leaders at these levels or whether indeed it is even sustainable when considering the deflationary conditions the US is about to enter. A round of concerted intervention could be on the cards. Analysts at Rabobank explained the scenario under which intervention could come about:

"USD strength will create a heavy burden for a range of EM countries particularly those that import oil and food commodities. It may also spark further protectionist calls in the US, as it did in the approach to the Plaza Accord in 1985. We expect that the preference of the Federal Reserve and other central banks will be to address the shortage of USD with the emergency funding lines that are being put back in place. If the number of coronavirus cases and related mortality rates peaks in Europe and the US over the next few weeks, this is likely to see panic reducing and USD strength ebbing. If the crisis is prolonged and the value of the USD continues to soar, however, concerted FX intervention to soften the dollar could be again on the menu."

NZD/USD levels