NZD / USD declines back to 0.6750, looking at last week’s lows

• NZD / USD recently fell back to the 0.6750 level as the dollar recovers amid safe haven flows.
• Kiwi and other risk-sensitive currencies are underperforming as stocks tumble amid tightening fears from the Fed.

The NZD / USD it has returned to the 0.6750 level in recent trading and has been testing last week’s lows at the 0.6740 zone. Currently, the pair is trading at a loss of around 0.5%, worse than its antipodean counterpart, but more or less in line with what is seen in other major USD pairs. Having failed in its initial attempts in the European session to test its 21-day moving average at 0.6780, the NZD / USD has come under selling pressure as markets take a risk-off stance during US trading. Further USD strength induced by risk aversion may cause the pair to break lower towards a test of the December lows at the 0.6700 zone.

The yen and the US dollar are the best-performing G10 currencies amid a safe-haven offering as Wall Street continues to sink. In particular, the Nasdaq 100 Index recently fell more than 10% from its recently hit record highs, classifying the index’s latest slowdown in big technology as a “correction.” This is undermining the appeal of risk-sensitive currencies like the kiwi. The main driver of risk aversion at the start of the new week appears to be fear of a faster pace of monetary policy tightening from the Fed this year.

Fed Chairman Jerome Powell will make remarks Tuesday and Vice President Lael Brainard on Thursday. These comments will be the highlights when it comes to the Fed’s rhetoric this week, though other FOMC members will also be speaking. There’s also the (not so) small matter of Friday’s December U.S. Retail Sales Report and the University of Michigan’s January Preliminary Consumer Sentiment Survey, with the latter being a timely indicator of the economic impact of the spread of Omicron. Risk appetite and USD flows will be the dominant force for NZD / USD this week, and Thursday’s New Zealand Building Consents data is unlikely to receive much market attention.

Technical levels