NZD/USD drops back below 0.7100, erodes daily gains as USD finds feet

• The US dollar has seen a pick-up from lows in recent trade, which has weighed on NZD/USD. 
• The pair has dropped back below the 0.7100 level and now trades flat on the day close to 0.7080.

NZD/USD rallied to fresh multi-year highs at 0.7120 on Monday, but has reversed back below 0.7100 to 0.7080 in recent trade amid a broad pickup in the US dollar from lows that has seen the Dollar Index recover from the 90.40s back towards 0.9080. As things stand, NZD/USD trades pretty much flat on the day.

NZD conforms to USD dynamics

Amid a lack of New Zealand or other fundamental drivers of note coming from down under, NZD is largely trading as a function of USD on Monday. Thus, the pair was initially boosted to year-to-date highs as USD fell to year-to-date lows on vaccine optimism (US FDA approved the Pfizer vaccine over the weekend) and Brexit hopes (talks did not break down over the weekend and continue).

However, amid what appeared to initially be profit taking in USD, but was then exacerbated by a series of back news stories on the Covid-19 front, including 1) the UK Health Secretary Matt Hancock announcing that London will be returning to Tier 3 lockdown and a new, more virulent strain of Covid-19 is spreading in the UK capital and 2) New York City Mayor de Blasio said that the city may need to return to full lockdown amid the continued surge in cases in the city.

This duo of news stories seemed to weigh on global equities a little, which have fallen from earlier highs and commodity markets (crude oil markets are now in the red), and have thus likely contributed to the USD’s resurgence, particularly vs higher beta G10 currencies such as NZD.

Looking ahead for the kiwi dollar, there are a few data points that will be worth watching this week. First up at 21:00GMT on Monday is the release of the Westpac Consumer Sentiment survey for Q4. Then Current Account numbers for Q3 will be released at 21:45GMT on Tuesday, followed by this week’s most important release, Q3 GDP numbers at 22:45GMT on Wednesday. Trade Numbers for November released at 21:45GMT on Thursday will be the final key data worth watching. However, as ever, USD dynamics and global market risk appetite are likely to be the dominant factors in determining NZD/USD price action.

NZD/USD trades at the bottom of short-term range

NZD/USD losses have been stemmed as the pair reaches the bottom of a short-term intra-day range that was in play for most of last Friday. The bottom of this range comes into play as support in the 0.7070s. If USD continues to gain ground, as it might, the next area of significant support for NZD/USD is just above the psychological 0.7000 level, which the pair has refused to pass back beneath since breaking above it in late November.

NZD/USD one hour chart