- After probing 0.6700 earlier in the session, the NZD / USD has stabilized in the last few hours in the 0.6710-0.6730 area.
- Sentiment is weighed down by concerns over Omicron, a major setback to US President Joe Biden’s economic program and the warmongering of the Fed.
After probing the 0.6700 level earlier in the session, NZD / USD has stabilized and spent the last few hours moving sideways in the 0.6710-0.6730 area. Apparently, last Wednesday’s post-Fed low of 0.6700 has offered sufficient support for now. At current levels around 0.6715, the pair is trading down around 0.3% on the day, meaning it is one of the worst, but not the worst, of the G10 currencies on the day (the CAD is the worst 0.5% drop). The underperformance of the NZD has everything to do with being a risk sensitive currency and therefore its appeal is undermined by the very low risk tone of the market that prevails on Monday.
Long story short, global equity markets, although the losses are the worst in the US right now (S&P 500 -2.0%), are being hit by a cocktail of negatives. These include negative news about the pandemic in Europe, where countries are on lockdown (Netherlands) or on the verge of tightening restrictions (UK, Italy, Germany, France) as Omicron cases increase. Players in the US market fear that the US is only a few weeks behind. Elsewhere, moderate Senate Democrat Joe Manchin, whose vote is crucial to passing any Democratic bill if there is no bipartisan support, appeared to neutralize the Biden administration’s flagship legislation. Manchin announced on Sunday that he would not support the T $ 1.75T Build Back Better (BBB) bill, although some believe negotiations will continue in January on a lean version.
If Congress fails to pass the BBB, it will be seen as negative for the growth prospects of the United States in the years to come. Some also cite fears that, despite the above, the Fed appears ready to move forward with the removal of accommodative monetary policy. Recall last week that the Fed doubled the pace of its quantitative easing slowdown, which Fed member Christopher Waller said on Friday indicated the March meeting was live for a rate hike. The Fed’s new dot plot pointed to three rate hikes in 2022, so support for a March take-off is unlikely to be far from the bank’s consensus.
While it is questionable how much the hawkish Fed theme weighs on sentiment, it has clearly supported the US dollar in recent days, hence the downward retracement of the NZD / USD from Thursday’s highs. last just before the 21 days. moving average at the time in the 0.6830s. The drop of around 120 pips is equivalent to a drop of around 1.8% of the NZD / USD from these levels in just two sessions, which is something and shows that the bears remain in control (short and long). medium term) in the pair. If this remains the case, the 0.6700 level is vulnerable. If the pair were to dive below this level, it would mark new lows since early November 2020. Medium-term bears would look to a return to the 0.6500 area, in the absence of any notable support in the interim .