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  • A stabilisation in broader risk appetite and a drop in the USD from earlier highs has allowed NZD/USD to recover above 0.7050.  
  • NZD is likely to continue to trade as a function of broader risk flows ahead of key housing data later in the week.

NZD/USD has posted a solid recovery from earlier lows just above 0.7000 and has now managed to climb back to fresh highs of the day above the 0.7050 handle. The pair is currently trading slightly more than 10 pips higher on the day or higher by just under 0.2%.

NZD to conform to risk appetite prior to key housing numbers

REINZ House Price Index data on Friday (at 20:00GMT) will be an important moment for NZD this week; last month, New Zealand’s labour government floated the idea of incorporating house price inflation into the RBNZ’s inflation remit. Note that house price inflation has far exceeded the RBNZ’s 1-3% consumer price inflation target over the last few years, an issue that the current government has pledged to attempt to tackle. Indeed, house prices surged 2.5% in September then 3.5% in October, fuelled amid the low-interest rate environment.

Another MoM surge in prices could up the pressure from the New Zealand government on the RBNZ to do something. Incorporating house price inflation into the RBNZ’s overall remit would likely result in a much less dovish RBNZ (negative rates would be incredibly unlikely, for example) and be NZD positive. However, the RBNZ might instead opt to impose minimum deposit limits on mortgage applicants so that it can maintain accommodative financial conditions for the rest of the economy.

While housing data on Friday is likely to garner lots of attention, NZD will otherwise trade as a function of global risk appetite; risks to do with Brexit (i.e. a deal vs talks collapsing) will influence USD and thus also NZD. Progress towards further US fiscal stimulus could also help risk-sensitive currencies such as USD. Meanwhile, Thursday’s ECB meeting and crucial EU leader’s summit (what will happen with the recovery fund?) could also affect NZD.

NZD/USD buyers come in ahead of 0.7000

NZD/USD bulls were eager to buy the dip on Monday as the pair approached 0.7000. Indeed, there is decent support between 0.7010-0.7020 (the 25 November highs and 30 November low). Now NZD/USD has bounced in this area, it may look to carve out a near-term range as it awaits further direction, with the top of this range likely to be last week’s highs just above 0.7100.

NZD/USD four hour chart