NZD/USD backs off 0.7050 highs but remains elevated

NZD/USD briefly eclipsed the 0.7050 level on Monday, before sharply backing off highs going into the final 16:00GMT London fix of the month. However, strong support was found just above 0.7010 and the pair has recovered back into the green to trade around 0.7030, up roughly 10 pips or just under 0.2% on the day.

NZD still a star performer amongst the G10

NZD looks to close the month with gains of 6.3% vs the US dollar, significantly outstripping its antipodean counterpart AUD, which holds onto more modest, but still solid, gains of around 4.7%.

Unlike AUD, NZD has not been weighed on by either central bank action (indeed, news of the New Zealand government floating the idea of including house price inflation into the RBNZ’s inflation remit actually boosted NZD) or tensions with China (China is holding up over A$1B in Australian coal imports and just hit Australian wine with huge tariffs).

Meanwhile, the kiwi has been able to benefit from a drastic improvement in broader financial market risk appetite (many major equities indices posting their best months in decades or even ever), which has been driven by vaccine hopes and US President-elect Joe Biden’s recent election victory. Not that New Zealand actually even needs a vaccine right now; the country has proven to be one of the best in the world in containing the pandemic, another factor keeping NZD supported.

Global themes such as those mentioned above look set to continue to dominate NZD flows in the week ahead, amid a lack of any more pertinent New Zealand domestic economic events. Solid Chinese PMI data and New Zealand ANZ business survey released during Monday’s Asia session has helped the kiwi off to a decent start. Whether the current pace of NZD/USD appreciation can continue at the present rate is another question; analysts note that NZD long-positioning is become overstretched and that the RBNZ, who have shown a strong aversion to NZD strength in the past, might be keen to jawbone the currency lower.

NZD/USD eyes June 2018 highs above 0.7050

0.7050 is the next barrier for NZD/USD to overcome, having tested it on multiple occasions but failed to breach it on Monday. Should this level go, a test of the June 2018 high at 0.7067 ought to come in short order. Conversely, if recent downside continues, there is solid support in the 0.7010 area, as came into play already on Monday. Below that, the psychological 0.7000 level ought also to offer solid support.

NZD/USD four hour chart