NZD/USD moves back towards Wednesday highs as US dollar fades

• NZD/USD has seen upside in recent trade amid US dollar weakness, setting daily highs in the 0.7080s.
• USD has seen some weakness after the ECB did not seem overly concerned about recent euro appreciation.

Amid a bout of USD weakness in recent trade, NZD/USD has moved back towards Wednesday’s highs above 0.7090, with the pair recently crossing back into the 0.7080s. At present, the pair trades with gains of just under 1% on the day or around 70 pips.

ECB opens the door for more USD weakness

Heading into Thursday’s ECB rate decision, US dollar bulls were hoping that the ECB would take a firmer stance in opposition against recent EUR strength. Indeed, since the ECB’s meeting in November, EURUSD has rallied from below 1.1900 to current levels in the 1.2100s. However, the move higher has been more of a function of USD weakness rather than EUR strength (Asia and EM FX also rallied vs USD over the same time period), meaning on a trade-weighted basis, EUR is not as strong as EURUSD implies.

The USD bulls were disappointed, as the ECB did not employ any strengthened language in opposition to EUR strength. Rather, the ECB reiterated that euro appreciation contributes to subdued price pressures and that the bank will continue to monitor developments in the exchange rate with regards to its possible implications for the medium-term inflation outlook. In the press conference, ECB President Christine Lagarde offered little more.

Traders seem to have taken this as something of a “green light” for EUR/USD to appreciate further, with the pair moving above the 1.2100 and towards 1.2150. As a result, USD has seen a broad decline, which actually seems to be benefitting the likes of AUD, NZD and CAD the most. Indeed, the lack of sense of urgency to weaken their currency shown by the ECB on Thursday may take the pressure off other currency strength concerned central banks such as the RBNZ, which indirectly might also be helping NZD.

Looking ahead for NZD, focus may return from global themes to domestic New Zealand events when New Zealand Business PMI data for November s released at 21:30GMT on Thursday.   

NZD/USD consolidated within medium-term pennant

Recent price action has confirmed that NZD/USD has been in consolidation within a pennant since the end of November. To the downside, an uptrend linking the 26 November, 7 and 9 December lows has been supporting the price action, whilst to the upside, a downtrend linking the 3 and 9 December highs has been acting as resistance. An upside break of this penant out to bring in play the 0.7100 level and a potential move back to multi-year highs. Meanwhile, a downside break of this pennant would mean the 0.7000 level would be under threat, as well as a move back towards the 21-day moving average at 0.6979.