NZD/USD sticking close to 0.7000 as markets ignore rising US Covid-19 cases

NZD/USD has spent the last few hours flirting with the 0.7000 level and even at one point nearly managed to make it as high as the 0.7020 mark. Its been a rather uneventful session for the pair as markets ready themselves for key events later in the week, so it perhaps not surprising to see the kiwi languish close to the sticky 0.7000 level. At present, the pair is trading just under the big figure and is flat on the day.

Driving the day

There has not been any news out of New Zealand worth noting, but there are a few stories out of the US worth talking about. Perhaps the most important thing happening in the US right now is the fact that Covid-19 cases continue to rise and this has become increasingly concerning to government officials. The White House and Centre for Disease Control have been urging states to slow their reopening drives and reinstate mask mandates and US President Joe Biden has even gone as far as saying he thinks states should pause their reopening efforts.

The fear is that the US might follow in the footsteps of mainland Europe and suffer a third wave of Covid-19 cases. Indeed, as is the case in Europe, the rising case count is being driven by variants of the virus, including the more transmissible UK strain. This news is yet to deliver a noticeable dent to the market’s appetite for risk and thus, for now, the kiwi is unscathed; the S&P 500 is trading very close to record high levels, crude oil is up on the day.

Some might say markets are being complacent in the face of what could be the beginnings of a nasty third wave of infections, a wave that could hit US growth expectations for the year. Other analysts might argue though that this wave is going to be different to past waves given the US has already been able to vaccinate most of its most vulnerable citizens, drastically reducing their risk of being hospitalised/dying. This means that while a third wave is entirely possible, the spike in hospitalisations and deaths ought to be much smaller – this line of thinking might be allowing cooler heads to prevail, for now.

US President Joe Biden will reportedly say that 90% of the US population will be eligible for vaccination from 19 April and that he is set to double the number of pharmacies offering the vaccine when he speaks later in the week; as long as the US’ vaccine rollout continues to truck along at a much faster pace than anyone would have expected even a few months ago, third-wave concerns are likely to be at least partially kept in check.

Sticking with President Biden’s comments later in the week; the main focus of his speech on Wednesday will be any remarks on further stimulus. White House Press Secretary Rochelle Psaki said over the weekend that Biden wants to split his “recovery” package into two separate parts, the first of which involves infrastructure and will be unveiled on Wednesday. Action on student debt is also expected to be announced. Details on part two of the recovery package will come later in April. Markets expect tax hikes, particularly on corporations and those earning over $400K per year (or in a couple earning more than this amount) to be announced alongside these proposals.

These proposals ought to feed into a stronger US dollar, given higher levels of investment in infrastructure in the US in the coming years is likely to give the economic outlook a solid and sustained boost versus countries that are not investing as much (like the Eurozone). However, a better performing US economy will be good for global growth and trade, which generally ought to be good for currencies of small open economies such as NZD. Even is NZD/USD does struggle to gain further ground then, it may well outperform the likes of EUR, GBP and JPY.

In terms of the coming week; the main events stateside are the March ISM manufacturing report on Thursday and then the March labour market report on Friday (things will be extra choppy given markets are closed for Good Friday). Meanwhile, in New Zealand, focus will be on the latest ANZ business survey on Thursday, as well as ANZ’s consumer confidence survey for March, also out on Thursday.