NZD/USD advances amid risk on, eyes test of late January highs at 0.7250

NZD/USD poked out of the top of its recent range on Monday amid a broad softening of the US dollar and a risk-on market vibe that benefitted risk-sensitive currencies such as the NZD and AUD; the pair hit highs of the day in the 0.7230s, its highest levels since 27 January. At present, the pair is consolidating in the 0.7220s, right in the vicinity of the previous February highs, and is up about 0.3% or 25 pips on the day.

Looking ahead for the kiwi, the RBNZ’s favour measure of New Zealand inflation, RBNZ Inflation Expectations for Q1, is coming up at 02:00GMT, on which the kiwi could be choppy. “Although price action has been a bit choppy of late”, comments ANZ, the bank thinks the “path of least resistance from here would seem to be higher given the recovery vibe at play in the market, and the broader global markets’ view that the RBNZ will be one of the earlier hikers.

Driving the day

There was not a great many game-changing fundamental catalysts to broader risk appetite on Monday, aside from a surge in Bitcoin driven by Tesla’s $1.5B investment in the cryptocurrency, though the kiwi (nor broader market) seemed to care much about this. Amid the lack of pertinent news flow, markets seemed to fall into a sort of “default” risk-on that prevailed for much of last week; stocks were up, commodities were up, bond yields hit new cycle highs (though gave back all those gains) and in FX markets, more risk-sensitive currencies (like the kiwi) did the best.

No particular theme can be pinned as to why markets have been risk-on, but 1) Congress continues to move towards what is likely to be another very substantial fiscal stimulus package that most expect will send the US economy into overdrive by the end of the year, 2) major global central bank accommodation remains unlikely to go anywhere any time soon (Fed and ECB speakers all sounded dovish on Monday and over the weekend) and 3) vaccine rollouts continue at a pace while infection rates in most major developed market economies continue to drop (the US reported less than 100K daily infections for the first time in months).

NZD/USD breaks above downtrend

Things are looking bullish for NZD/USD, technically speaking; the pair broke above a downtrend that had been in play for most of the year, linking the 6 and 26 January and 3 February highs. The break opens the door to a potential test of the late January high at just under 0.7250. A break above this level could potentially open the door to a move upwards and onwards towards the annual high just to the north of 0.7300.

NZD/USD four hour chart