NZD/USD recovers above 0.5800 on easing concerns over USD shortage

• US Dollar Index retreats below 102 on Friday.
• RBNZ reestablishes USD swap line with Fed to provide liquidity.
• Coming up: Existing Home Sales data from US.

The NZD/USD pair slumped to its lowest level since March of 2009 at 0.5470 on Thursday but staged a decisive recovery on Friday as markets finally started to react to the fiscal and monetary measures taken by major economies to battle coronavirus. As of writing, the pair was trading at 0.5820, adding 2.65% on a daily basis.

$30 billion RBNZ-Fed swap line

On Thursday, the Federal Reserve announced that it established temporary USD swap lines to address the USD shortage in funding markets. The Reserve Bank of New Zealand (RBNZ) said the swap line will provide up to $30 billion liquidity in the FX swap market to ensure funding can be accessed at rates near the official cash rate.

Additionally, reflecting the improving market sentiment, which helps the risk-sensitive NZD find demand, major European equity indexes are up between 3% and 5% on the day.

On the other hand, after rising nearly 5% in the last three days, the US Dollar Index lost its traction and was last seen erasing 1% on the day at 101.90 to help the pair preserve its recovery momentum.

In the second half of the day, Existing Home Sales will be the only data featured in the US economic docket but is unlikely to trigger a market reaction. Despite Friday’s decisive rebound, the NZD/USD pair is still down more than 4% on a weekly basis.

Technical levels to watch for