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  • NZD/USD shrugged off downbeat Terms of Trade data to advance to highs of the day in the 0.7060s.
  • The kiwi continues to position itself as a prime beneficiary of ongoing USD weakness.

NZD/USD closed Tuesday FX trade with gains of nearly 50 pips or close to 0.7%, as USD weakness (the Dollar Index dropped to its lowest levels in over two and a half years under 91.20) drove its G10 counterparts higher.

Downbeat Terms of Trade data does nothing to dent bullish NZD sentiment

New Zealand Terms of Trade data for Q3 was just released and was broadly disappointing; while Export Volumes were up 5.6%, more than the 4.0% QoQ expected gain, prices of both exports and imports plummeted. The former dropped 8.3% in the quarter, much larger than the anticipated 3.5% drop, while import prices dropped 3.7%, more than the expected 1.0% decline. Falling import and export prices meant that the overall Terms of Trade Index dropped 4.7%, much larger than the expected 2.8% decline.

Whilst the data was not great, markets saw it as out of date. Indeed, NZD traders are much more focused on the increasingly favourable outlook for the New Zealand economy in 2021 and beyond, rather than backward-looking data.

For this reason, NZD continues to be one of the best G10 performers day in, day out, as the US dollar broadly continues its recent bearish trajectory. The Euro may have stolen the show on Tuesday, rallying more than 1% on the day, buoyed by technical buying on the break of 1.2000 and further evidence of the gradually improving state of the Eurozone Covid-19 pandemic, but NZD put in a respectable 0.7% rally.

The kiwi is a key beneficiary of all of the ongoing themes that have been weighing on USD, such as; vaccine optimism related risk-on, the persistently high number of new Covid-19 infections being reported each day and optimism that global trade conditions are set to improve in 2021 and beyond under the Biden administration. After all, the currency is sensitive to risk and well placed to benefit from rising equity markets, New Zealand has the virus under complete control and its people are living under relatively light restrictions and New Zealand is a trade dependant country.

NZD/USD continues to rally within bullish trend channel

NZD/USD continues to smash through key levels of resistance as it continues to move to the north within a bullish trend channel. The bullish trend channel links the 11, 24 and 27 November highs on the upside and the 13, 19 and 30 November lows to the downside, and appears to have come into play on Tuesday as resistance.

Not that NZD/USD was prevented from June 2018 highs at 0.7060 on Tuesday, a level which has seemingly offered some support in recent hours. If this support does go, however, the main levels to watch to the downside will be 30 November high at 0.7050 and lows at 0.7020, ahead of the psychological 0.7000 mark.

NZD/USD two hour chart