There appears to be some squaring of positions at stake in the market on Monday before Tuesday’s crucial Senate election in Georgia.
The US dollar has recovered from previous lows, bringing the NZD USD below the 0.7200 level.
The NZD / USD has fallen back from early European session highs and below the 0.7200 level again amid a rally in broader volatility that has seen global equity markets (S&P 500 trading down 1.1 % and FTSE World now in the red) and crude oil markets (WTI now down almost 2%) liquidation and USD rebound from lows. Currently, the pair is trading slightly lower on the day as it tests support at its early Asia Pacific session lows at 0.7180.
Kiwi attentive to international issues to boost the week
Amid the lack of key economic or political events to come out of New Zealand this week, kiwi traders will have their eyes wide open on global affairs. Therefore, as appears to be the case today, the broader market appetite for risk and the US dollar will remain in the driver’s seat of the NZD / USD price action.
Markets have taken a kind of risk-averse tone in recent trading amid what appears to be a combination of 1) position adjustment (removing some risks from the table) ahead of the Georgia Senate runoff and elections Tuesday specials and 2) some concern about the tightening of Covid-19 Blockades in Europe (British Prime Minister Boris Johnson is expected to announce a national blockade at 20:00 GMT and stricter restrictions are being analyzed in Germany, Ireland and other places in the EU).
Looking ahead, it may be a volatile week. The outcome of Tuesday’s Senate election in Georgia is not expected to be known for some time, as ballots are counted by mail (similar to the November 3 presidential election). If Democrats win a victory and manage to win both seats, and thus a majority in the Senate, this would give them control over Congress and the power to enact significant additional fiscal stimulus in 2021. The backlash from the Senate is likely. market to such a result be positive, given the jubilant reactions observed in recent months to higher fiscal spending.
Traders should also keep an eye out for crucial US data in the form of Supply Management Institute PMI figures for December, released Tuesday and Thursday, as well as official employment figures for Friday, also for December. Market analysts / commentators have argued that in the current bearish USD environment, the data presents downside risks for the USD (and upside risks for NZD / USD) given the possibility of a risk in the reaction (negative USD ) to strong data in the face of possible increased expectations of further Fed easing in the event of weak data (also negative USD).
NZD / USD mid-December highs
The NZD / USD bulls are likely to have their eyes on a possible test of support at 0.7172, the high of December 17, 2020. The target would then be a move towards the 2020 highs around 0-7240, with the bulls waiting for a return of bearish USD conditions as the week / month progresses.
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