NZD/USD looking bullish, hits highest levels since 2018 above 0.6950

NZD/USD is trading just below fresh multi-year highs above 0.6950 (highest level since Q4 2018). The kiwi is the best-performing currency in the G10 today, with NZD/USD trading higher by around 30 pips, or nearly half a percent.

Confident kiwi bulls clearly eager to front-run expectations for strong 2021

No specific New Zealand fundamental news has been on the agenda on Friday, or even really anything this whole week. New Zealand’s better than expected economic recovery thus far in 2020 has left the RBNZ struggling to justify threats to take rates negative in 2021, hence markets priced this out last week. This is a theme that likely continues to work in NZD/USD’s favour, given the increasingly dovish tone of the FOMC this week on the near-term outlook for the US economy increasing the chance of some central bank divergence over the coming months.

Indeed, pressure on the Fed to act is growing amid 1) a lack of fiscal stimulus from Congress (many analysts expect nothing to get done during Congress’ lame-duck session) and 2) the recent decision by the Treasury to not renew emergency Fed lending programmes at the end of the year (meaning the Fed might have to look at other stimulus options). Markets look to be increasingly betting that the Fed will expand the duration of its QE purchases.

Back to the kiwi; with New Zealand a virus-free country (for now) that is heading into the Summer (viruses struggle in the Summer given people spending more time in the better ventilated outdoors), they are not facing the same near-term risks as Northern Hemisphere developed economies, something which might be giving NZD (and AUD, for the same reason) an element of safe-haven appeal (in the short-run at least).

Moreover, with the incoming Biden administration already signalling intent to create a more stable, favourable global trade environment, export-dependent New Zealand is likely to be one of the main beneficiaries of this. These better global trading conditions are still some way off; the world needs to wait for Biden to arrive in office in January and recover from Covid-19 pandemic. But the latter half of 2021 ought to be a good year for the kiwi.

This line of thinking seems to be why kiwi has been this week’s standout performer in G10 FX. On the week, NZD/USD has rallied nearly 100 pips and is up roughly 1.5%.

NZD/USD at highest since 2018

NZD/USD bulls pushed the cross above the Q1 2019 double top on Friday, pushing the pair to its highest levels since 2018 and above 0.6950. The next level to the upside is the Q4 2018 high at 0.6969. Still looking at the pair through a broad lens, the next significant levels of support to the downside are in the 0.6800 region.

Looking at the pair on a short-time horizon; NZD/USD has been gaining within an upwards trending wedge since Thursday’s European morning session. A break below this trendline would open the door to a move back below 0.6900 and towards Thursday lows at 0.6880.

NZD/USD weekly chart

NZD/USD hourly chart