NZD/USD breaks the 2020 61.8% Fibo

NZD/USD has been following the Aussie higher and benefitting from a drop in the greenback. At the time of writing, the bird is up to some 1.3% vs the greenback having travelled from a low of 0.6288 to a high of 0.6290.

The main story is equities. Despite the US riots, risks of the second wave of COVID-19 and prospects of a protracted global turndown, bulls are chasing the momentum higher which is playing into the hands of trend traders in the FX space. 

This is all excellent news for the antipodeans for which have rallied extensively since their darkest days following the central bank fulled sell-offs and printing of their virus lows. AUD has gone on to print fresh highs at the start of this week, the highest since January and the bird has penetrated a 78.6% retracement of the 9th March highs and a 61.8% Fibonacci of the 2020 range. The moves in the antipodeans come despite the obvious risks in a flare-up of trade tensions between the US  and China.

Spot's divergence to positioning data

Spot FX has not been representative of the net AUD short positions which had increased for a third week according to positioning data. 'Concerns about US/China and Australian/China tensions leave the AUD vulnerable given its China trade links. That said, the tone of the AUD has improved further in the spot market,' analysts at Rabobank noted. 

This likely suggests that the moves are more USD and risk-on related. The dollar index has traded between 98.32 and 97.82 the low so far today, susceptible to risk flows stemming from a perceived V-shaped post-COVID-19 lockdown recovery. At the same time, the US President Donald Trump's China news conference failed to appease the uber hawks, a favourable environment for stocks opening this week, weighing on the greenback.

However, in view of the headwinds concerning the risks of the second wave of COVID-19, while improved risk appetite could squeeze further gains for global equities and continue to weigh on the greenback, we are yet to really see the full extent of the lockdown damages. 

A market shock will likely see demand reinstalled for the debt denominated US dollar and a progression from a war of words between the US and China to something more tangible would be the death knell for the antipodeans. 

'We expect the full whack of the global slowdown and the fractious US/China relations to bear down on the AUD in the months ahead and maintain the view that AUD/USD faces the prospect of a potential sharp dip lower on a 3-month view,"

– analysts at Rabobank argued – a factor that would also weigh on the bird. 

NZD/USD levels