- NZD/USD has rallied above the 0.7300 level amid positive risk appetite and favourable bond market price action.
- The pair looks set to test its annual highs; a break above could be a bullish technical signal.
NZD/USD has been firmly on the front foot since the start of Friday’s European trading session, rallying from Asia Pacific levels of just above the 0.7200 mark to now above 0.7300. The pair is thus within striking distance of the 2021 high set right at the start of January of just shy of the 0.7320 level. With gains of roughly 1.2% versus this US dollar, Friday is shaping up to be the kiwi’s best since 9 October 2020.
On the week, the currency is now vying for first place in the G10 ranking with GBP and AUD, all trading with weekly gains versus the US dollar of between 1.2-1.4%. On the month, NZD is the third-best performer after GBP and AUD, up about 2% versus USD.
The kiwi currently sits atop the G10 FX performance table, though specific news or events can be definitively pointed at as supporting the currency. For what its worth, Q4 PPI data released during Friday’s Asia Pacific session did not appear to influence the price action much; input prices were unchanged in the quarter, down from growth of 0.6% in Q3, whilst Output price growth accelerated to 0.4% from its -0.3% contraction in Q3.
Markets have been in a generally risk-on mood on Friday and this is supporting risk-sensitive currencies such as NZD; stock markets are yet to take the recent run higher in global bond yields as a negative and the S&P 500 continues to trade comfortably above the 3900 level, not far from recent record levels. US President Joe Biden is expected to say that the US is not looking for a new cold war with China at the G7 summit, constructive commentary that may ease some concerns about the potential for relations to further deteriorate. Biden is still expected to call for democracies to challenge the country’s abusive practises, however. Meanwhile, preliminary Markit PMI data for February out of Australia, the UK and US were decent, implying that the recovery in these countries remains on track as global vaccine rollouts continue. On which note, vaccine appears to lower Covid-19 infections and transmission rates by two-thirds, according to the Telegraph citing data set to be released later this month by Public Health England.
Whilst the above is all very well and good for the kiwi, support also appears to be coming from movements in Australia and New Zealand’s bond markets; yields in the former have surged since the start of the European session, with Australian 10-year bond yields currently up more than 7bps on the day at close to 1.49% following a change to Westpac’s year-end bond yield forecast (which was revised higher to 1.9% from 1.5%. When New Zealand’s bond markets re-open on Monday, similar upside is likely to be seen in bond yields there. That means the country’s 10-year yield could be substantially higher than its Friday closing level at 1.517%, which was already amongst the highest yielding developed market 10-year notes.
NZD/USD four hour chart
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