- NZD/USD hit its highest level since late November in the 0.6950 area on Tuesday.
- Tuesday’s kiwi rally comes amid strong risk appetite and broad bullish momentum across the global equity space.
- NZD also has the added tailwind of one of the most aggressive G10 central banks in the RBNZ.
The NZD/USD it rose to the 0.6950 zone on Tuesday and in doing so reached its highest level since the end of November. At current levels, almost reaching the round level, the pair trades with gains of just under 1.0% on the session and is up more than 1.2% from Asian session lows at 0.6865. In fact, the Kiwi is the best performing G10 currency on the day by a reasonably significant margin, despite a weakening in consumer sentiment in Q1 2022 versus Q4 2021 according to the latest Westpac report. .
Tuesday’s impressive kiwi rally comes amid strong risk appetite and broad bullish momentum across the global equity space, conditions that are typically good for stocks like the NZD and AUD. But the kiwi (and the Australian dollar) are also benefiting from their relative distance from the Ukrainian conflict against, for example, currencies like the NOK, SEK and other more risk-sensitive European currencies. In fact, if investors are looking to invest in a currency that 1) can benefit from risk, 2) can benefit from higher commodities, and 3) is less exposed to the negative economic effects of the Ukraine war, the kiwi (and the Australian dollar) pretty much ticks all the boxes.
The Kiwi also has the added tailwind of one of the most aggressive G10 central banks in the RBNZ. The RBNZ is already well ahead of the Fed in the current hike cycle and things are expected to stay that way as the bank is likely to hike interest rates in 50bp intervals at upcoming meetings. That could explain why the kiwi has been able to turn down the strength of the USD.
Looking ahead, the main drivers of risk appetite (geopolitics, Fed rhetoric, etc.) will remain important for NZD/USD. There is nothing of note on the New Zealand economic calendar this week, but FX traders should be on the lookout for a barrage of speeches from the Fed over the rest of the week that will provide more insight into which policymakers support which path of adjustment is coming, plus the US Flash PMI for March on Thursday.
Source: Fx Street
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