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  • NZD/USD has slid under the 0.7100 level in recent trade, amid an uptick in the buck.
  • USD is crawling higher into the year-end, where rebalancing flows could give it some support.

NZD/USD has slipped beneath the 0.7100 level in recent trade and is down roughly half a percent on the day or just under 40 pips. The pair is largely being driven by USD flows amid a lack of any notable news flow coming from down under. The US dollar has been picking in recent trade against the majority of its major counterparts aside from the euro, hence downside in the kiwi, despite upside in risk assets elsewhere.

In the grand scheme of things, the NZD/USD continues to trade well within recent 0.7000-0.7160ish ranges. To the downside, NZD/USD bears ought to watch out for the 21-day moving average situated at 0.70714. Beyond that, the next key support will be ahead of the psychological 0.7000 area, which has proven a strong floor to the price action thus far on the month.

USD crawls higher into the year-end

Some analysts might argue that the news that US President Donald Trump changed tack and opted to sign Congress’ $900B Covid-19 aid bill is helping USD, according to the traditional argument that can be made for any currency; more fiscal stimulus = better economic performance = stronger currency. This argument may have some merit, but in the recent past and owing to USD’s status as a haven currency, has not held much sway. In other words, USD’s safe-haven properties have made it sell off amid any stimulus-induced risk on conditions.

A simpler argument might be that at the end of a grueling year for the buck, USD might be seeing some gentle demand as major institutions undertake month, quarter and year-end rebalancing. Indeed, the Dollar Index (DXY) saw strength going into the 4pm London Fix, which could be a sign of things to come this week.

With Brexit now “sorted” (the two sides managed to scrape out a bare-bones deal that at least removes no-deal risk, anyway) and GBP selling off in its aftermath, and US stimulus now sorted as well, things are likely to quieten down for the remainder of the year. If anything, focus will be on the pandemic and progress of mass vaccination programmes.

On the year DXY is down about 6.7%, so perhaps some profit-taking on short positions now that the key risk events listed above have been hurdled is warranted and might keep DXY supported above 90.00 for the remainder of the year.