NZD sinks after new COVID-19 case detected in Auckland

The best-case scenario for the kiwi is that the latest community case is somewhat contained and it does not disrupt the RBNZ's tightening plans. The central bank is due to meet tomorrow and suddenly policymakers are being thrown a curveball at the last minute.

But if the situation turns out to anything similar to Australia, it will be a massive blow to kiwi sentiment and the NZ economic outlook over the next few weeks/months.

That will push back any RBNZ rate hike expectations and the timing in which the market has eyeing, with the kiwi among the favourites in the recent "divergence" trade.

Now all of that is going to be put on ice until there is more clarity on the virus situation in New Zealand, with the next few days going to be a tense one for the kiwi.

AUD/NZD has seen a big rebound today as the downside momentum fizzles upon also testing its first target i.e. December lows @ 1.0418-23.

AUD/NZD D1 17-08

From a technical perspective, that's a key line in the sand that buyers will be holding on to now as the fundamentals start to shift in the pair again.

For sellers, the latest headlines and hitting of the key technical target presents a good case for a pause - at least for now - until there is a better idea of how things will play out.