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  • NZD/USD saw a sharp reversal in fortunes dropping from near-two-year highs just under 0.6970 to briefly below 0.6900.
  • Driving the reversal was a broad-based recovery of the US dollar following strong PMI data, although negative US/China news also weighed.  
  • The cross has since recovered back to 0.6920 and looks set to continue to be dominated by risk appetite/USD sentiment.

NZD/USD has reversed sharply lower from near-two-year highs just below 0.6970, with the pair dropping momentarily below 0.6900 before reversing higher again to current levels around 0.6920. On the day, NZD/USD trades with losses of around 20 pips, or of around 0.3%.

Kiwi trades as a function of US dollar sentiment

Strong Q3 retail sales data out of New Zealand just before the reopening of global FX market trade at 22:00GMT on Sunday assisted NZD in getting off to a solid start on the week. Having dropped 14.6% QoQ in the second quarter of the year given Covid-19 first wave lockdowns, retail sales made an impressive comeback in the third quarter of the year, jumping at a QoQ rate of 28.0%.

However, the NZD/USD pair, as is so often the case, has been primarily driven by the waxing and waning of sentiment towards the US Dollar on Monday.

Initially, on Monday, USD was out of demand, amid a market feeling increasingly optimistic about the coming vaccine rollout following AstraZeneca’s release of its results of their final vaccine trial (70% efficacy and the vaccine can be stored for six-months at normal refrigerator temperatures). NZD/USD came within a whisker of reaching its highest levels in over two years during Monday’s European morning session at 0.6970.

However, following much better than expected US IHS Markit PMI data at 14:45GMT, the US dollar has seen a stunning reversal; as DXY rose back above 92.50, NZD/USD sharply dropped over 70 pips, to momentarily below 0.6900.

Prior to the data, the antipodes (AUD and NZD) had seen some minor downside on concerns over rising US/China tensions over the remainder of the US President Trump presidency following the release of a WSJ article which claimed that the Trump Administration is pushing for new hard-line measures against China to prevent them from employing economic coercion.

In terms of what lies ahead for both NZD and USD; FOMC Members Daly and Evans are set to speak on the economy, ahead of more Fedspeak and US consumer confidence data tomorrow, while NZD does not have any important domestic events to worry about until RBNZ Governor Orr speaks during Wednesday’s Asia session.

In the meantime then, pandemic news (be that regarding vaccines or lockdowns) is likely to be the major driver of NZD/USD.

Technical Levels of note for NZD/USD

 

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