NZD/USD trapped bears feeling the pain as risk-off ebbs

NZD/USD is higher at the start of the week, adding some 0.16% at the time of writing as currency markets calm Asia after the initial shock of the discovery of the Omicron coronavirus variant. NZD/USD trades around 0.6820 after rising to a high of 0.6834  on the day from a low of 0.6807. 

However, there could be f more volatility with little still known about the new strain ahead, although there are some good news wises related to the variant shining through the cracks on Monday. A tweet is doing the rounds through financial social media that states that Israel's Prof. Dror Mezorach, head of the coronavirus department at Hadassah University Hospital Ein Karem, said the preliminary reports on the clinical condition of people infected with the new variant are encouraging. 

''If it continues this way, this might be a relatively mild illness compared to the delta variant, and paradoxically, if it takes over, it will lead to lower infection rates,'' and it will be easier to deal with globally. 

However, what has roiled markets is the mutations in the spike protein that is suggesting it could be resistant to current vaccines. Additionally, Omicron has already been detected in places including Australia, Britain, Canada, Germany and Hong Kong. BioNTech said Friday it may know within two weeks if the vaccine it developed with Pfizer needs to be reworked.

Meanwhile, ''NZD/USD has actually held up fairly well (compared to equities, oil and bonds), but NZD/JPY and NZD/EUR have been crushed. Very little is yet known about Omicron, but if it proves to be problematic, and its impact more global than local, that does speak to all economies taking a hit, and not just New Zealand,''

''In turn, that means less for relative prices like exchange rates,'' the analysts stated. ''But a lot of good news was already priced into the Kiwi (particularly on the interest rate/carry side of the equation) and that could make the NZD more vulnerable, particularly against the low or negative policy rate countries like Japan and Europe.''