NZD/USD at session highs near 0.6870, eyes push towards resistance above 0.6900 as commodity-FX outperformers

NZD is outperforming in tandem with some of its other more commodity-sensitive G10 peers like the Aussie and Loonie on Thursday, even though the price action across most of the commodity space hasn’t been massively bullish on the day. NZD/USD is currently trading just under the 0.6870 level and at session highs, nearly 0.9% higher versus earlier session lows at 0.6810 and up about 0.5% versus Wednesday’s closing levels in the 0.6830s. If the pair can muster a breakout above intra-day resistance at 0.6870, technicians think that could open the door to a run back towards earlier weekly highs in the 0.6920s.

With traders seemingly focused on recent rallies in the prices of major New Zealand commodity exports (agricultural products) rather than evidence of economic weakness last month to reflect surging Omicron infection rates, NZD upside may have further legs. For reference, electronic card spending was down 7.6% MoM in February, with analysts at Westpac saying “Omicron-related nervousness is likely to remain a drag on spending for some time yet”.

NZD/USD also seems to be shielded by high US inflation (data on Thursday showed CPI hitting fresh four-decade highs in February) and subsequently hawkish Fed tightening expectations by even more hawkish expectations for RBNZ policy tightening. According to Reuters, money markets imply an 85% probability of a 50bps rate hike to 1.5% next month and then reaching 2.0% by July. The RBNZ has signaled that it intends to take interest rates above the “neutral rate” and recent geopolitical events and the impact on commodity markets will likely strengthen this conviction.