- The NZD / USD is currently trading just below the 0.7250 mark, but remains above the 0.7220-0.7240 support zone for now.
- NZD / USD continues to focus on global issues such as US dollar sentiment and reflation narratives.
He NZD / USD It is currently trading just below 0.7250, down around 0.2% or just under 20 pips on the day amid indecisive trading conditions in the US dollar. The pair has oscillated as high as 0.7280 and as low as 0.7220, but has been approaching Friday’s lows again in recent trading amid a recovery in the US dollar that has seen the dollar index retreat above 90.00.
The pair didn’t see much of a reaction to the release of the December US labor market report, given that markets are looking through any short-term economic weakness and towards post-Covid-19 recovery at this time.
The NZD / USD continues to focus on global issues, such as sentiment towards the US dollar and reflation narratives, which have received a boost since the Democrats’ victory in the Georgia Senate elections that handed them control of Congress and ensures that more US stimulus is on the way.
These two factors have had a mixed impact on NZD / USD so far; The more markets bet on inflation (that is, the higher US inflation expectations and commodity prices are), the better it will be for countries that depend on commodity exports, such as Nueva Zealand and its coins. Meanwhile, the more confidence in the USD improves, the more it weighs in the cross; The bullish arguments for the USD at the moment are in the line of greater fiscal stimulus that translates into stronger growth in the short, medium and long term and a more aggressive Fed.
While most analysts expect markets to continue to bet on higher inflation (i.e. inflation expectations, nominal bond yields, and commodity prices going forward) as a result of expectations of a Further stimulus, the debate over the ultimate impact this will have on the US dollar continues. Dollar bears argue that increased fiscal stimulus will not be a positive dollar since 1) it will be financed by more government debt and will likely widen the U.S. trade deficit, 2) higher debt will make it even more difficult for the US. Fed normalize policy and 3) will boost global growth and risk appetite, which is generally bad for the dollar as a safe haven.
Ultimately, what happens to the USD will be the ultimate determinant of whether the NZD / USD will continue to rally or stop for a while, but given the boost to the NZD by reflation trading, the kiwi is likely to continue to outperform its G10 pairs that depend on the export of commodities, such as EUR, GBP and JPY.
NZD / USD still in the uptrend channel
The NZD / USD continues to advance within an uptrend channel that has been in play since the second half of December 2020. On the downside, the price action has been supported by an uptrend linking the 21, 21 and 28 December, as well as the January 4 lows and to the upside, price action is constrained by an uptrend linking the December 16 low and December 21, 30, and 31 highs.
A break below this trending channel would require a definitive break below the 0.7220-0.7240 support / resistance area that has been in play since December 31, 2020, and would likely open the door for a move towards the low of the Monday at 0.7150 and perhaps a test of the pair’s 21-day moving average just below 0.71371.
4 hour chart
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