NZD rebounds as risk appetite rises

The New Zealand dollar has recorded strong gains in the Monday session. NZD/USD is currently trading at 0.6893, up 1.01% on the day.

New Zealand dollar coming off rough week

It was a disastrous week for the New Zealand dollar, which was pummelled by the US dollar. Risk sentiment fell badly, as the resurgence of Covid put into question the strength of the global recovery and sent investors scurrying to the safety of the US dollar. This resulted in sharp declines for the New Zealand, Australian and Canadian dollars, all of which are sensitive to risk sentiment. NZD/USD plunged 3.1% last week, its worst weekly showing since September. The markets reacted negatively to the RBNZ’s abrupt decision not to raise interest rates after a resurgence in Covid led to the nationwide lockdown.

The FOMC minutes were viewed as hawkish by the markets, even though the Fed refrained from providing any hints at a timetable for tapering. This helped reduce risk appetite and sent the US dollar to higher ground. Although the New Zealand dollar has enjoyed a strong start to the week and the US dollar could hit more turbulence at Jackson Point, if Fed Chair Jerome Powell applies the breaks to taper talk due to the resurgence of the delta variant of Covid. There were wide expectations that the Fed would announce a taper scale-back at Jackson Hole. However, there is growing speculation that the Fed will continue its wait-and-see mode at least until the September meeting.

New Zealand will release Retail Sales for the second quarter later today. In Q1, Retail Sales came in at 2.5% and Core Retail Sales at 3.2%. The Q2 numbers are not expected to be as high, and the New Zealand dollar’s rally could peter out if investors are disappointed with the releases.

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NZD/USD Technical

• There are resistance lines at 0.6985 and 0.7094
• On the downside, 0.6870 is fluid. Below, there is support at 0.6763

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