NZD/USD tests 0.6900 amid vaccine driven risk on FX market flows

NZD/USD is enjoying solid gains on Monday, with the pair up over 50 pips or 0.8% on the day, and looking to take out 0.6900 to the upside.

Risk sensitive NZD enjoys vaccine driven boost

Risk assets received another shot in the arm on Monday morning, almost exactly one week following Pfizer and BioNtech's positive vaccine announcement last Monday; Moderna released the results of their Phase 3 trial and their vaccine might be even better. Firstly, it has a slightly higher efficacy rate at 94.5% (Pfizer/BioNtech’s vaccine was about 90%) and secondly, it can be stored at refrigerator temperatures (Pfizer/BioNtech’s vaccine must be kept frozen, which presents a key logistic/distributional challenge).

Thus, financial markets have again cheered; the S&P 500 currently trades with gains in excess of 1.0%, while over in Europe, the Stoxx 600 closed up by around 1.2%. Meanwhile, crude oil markets (front-month Brent and WTI futures) are up over 3% and US yields have again moved higher, with the yield curve steepening.

FX markets are also feeling the positive vibes; leading the G10 FX performance table are the risk-sensitive quintuplet NOK, NZD, AUD, SEK and CAD in that order. NOK is up nearly 1% vs USD, the antipodes roughly 0.7% and SEK and CAD roughly 0.4%. Meanwhile, JPY, CHF, GBP, EUR and USD are the worst G10 FX performers on the day, all trading pretty much flat vs each other.

Amid a lack of any notable domestic New Zealand events (there is no important data or RBNZ events or speakers), NZD looks set to continue to trade as a function of broader risk appetite. There is a chance that the kiwi might be affected by a busy domestic schedule of events across the Tasman Sea; out of Australia this week there are a few important RBA speakers as well as crucial retail sales and labour market data for October that could shift AUD (and thus also potentially NZD in sympathy).

Turning to the USD side of the equation, as well as the upturn in risk sentiment, USD is also arguably being weighed by disappointing NY Fed Manufacturing data. The regional manufacturing survey index came in at 6.3, below expectations for 13.5 and down from last month’s 10.5, an early signal of a mild deterioration in US manufacturing conditions this month.

NZD/USD set to make a break for fresh multi-year highs

Last week’s high in NZD/USD of 0.6914 looks there for the taking if the pair can manage a break above the psychological 0.6900 level this week. Beyond that level, significant resistance resides in the 0.6940 region (January, February and March 2019 highs), followed by the December 2018 high at 0.6970.

To the downside, significant support resides between 0.6790 and 0.6810; last Friday’s low sits at 0.6810 and below the psychological 0.6800 level are the 2 and 18 September highs at 0.6790 and 0.6798 respectively.

Looking at the pair on a shorter time horizon, Monday’s late Asia/early European session’s double top at 0.6890 ought to provide decent intraday support. Below that, the 0.6850 level seems to have provoked a decent reaction every time it has been reached over the past few days, either acting as decent support or resistance or seeing a surge above or below the level.