NZD / USD retreats from nearly two-year highs, but remains above 0.6900

• The NZD / USD experienced a sharp reversal falling from nearly two-year highs just below 0.6970 to briefly below 0.6900.
• The driver for the reversal was a widespread recovery in the US dollar following strong PMI data, although negative news from the US and China also played a role.
• Since then the cross has rallied to 0.6920 and it looks set to continue to be dominated by USD sentiment / risk appetite.

The NZD / USD It has drastically reversed lower from nearly two-year highs just below 0.6970, with the pair momentarily dipping below 0.6900 before reversing higher again to current levels around 0.6920. On the day, the NZD / USD is trading at a loss of around 20 pips, or around 0.3%.

Kiwi trades based on US dollar sentiment

Strong third-quarter New Zealand retail sales data just before the global currency market reopened at 22:00 GMT on Sunday helped the NZD get off to a strong start to the week. Having fallen 14.6% qoq in the second quarter of the year due to the lockdowns from the first wave of Covid-19, retail sales returned impressively in the third quarter of the year, jumping to a 28.0% qoq rate.

However, the NZD / USD pair, as is often the case, has been driven primarily by rising and falling sentiment towards the US dollar on Monday.

Initially, on Monday, the USD was out of demand, amid a market that feels increasingly optimistic about the next vaccine launch following AstraZeneca’s launch of the results of its final vaccine trial (70% efficacy and the vaccine can be stored for six months in a normal refrigerator temperatures). The NZD / USD came close to reaching its highest levels in more than two years during the European morning session on Monday at 0.6970.

However, following the much better than expected US IHS Markit PMI data at 2:45 PM, the US dollar has seen a surprising reversal; When DXY rose above 92.50 again, the NZD / USD fell sharply more than 70 pips, momentarily falling below 0-6900.

Before the data, the antipodes (AUD and NZD) had seen some minor downsides from concerns about escalating tensions between the United States and China during the remainder of the presidency of US President Trump, following the publication of a WSJ article that claimed the Trump Administration is pushing for new hard-line measures against China to prevent them from employing economic coercion.

In terms of what’s ahead for both the NZD and the USD; FOMC members Daly and Evans are ready to talk on the economy, ahead of more consumer confidence data from Fedspeak and the US tomorrow, while NZD has no major national events to worry about until the governor of RBNZ Orr spoke during the Asia session on Wednesday.

Meanwhile, news about the pandemic (whether on vaccines or shutdowns) is likely to be the main driver for NZD / USD.

Technical levels