NZD/USD eyes test of 0.6800 level, but 21DMA at 0.6792 acting as resistance for now

• NZD/USD has rallied on Wednesday, but has now into resistance at the 21DMA at 0.6792.
• Further substantial gains are not expected amid a broader subdued feel to financial market trade pre-holidays.

Despite the subdued tone to trade in global equities and commodity complex as markets enter “holiday mode”, FX markets are adopting an increasingly risk-on bias, and this is supporting NZD. NZD/USD has thus been advancing in recent trade, rallying from overnight lows in the 0.6940s to current levels just shy of the 0.6800 mark. At current levels in the 0.6790s, where the pair trades with on-the-day gains of about 0.4%, the 21-day moving average at 0.6792 is offering some resistance.

Amid the lack of broader financial market conviction and slow newsflow, where focus predominantly remains on the global spread of Omicron and reaction from government authorities, a further spurt above 0.6800 for NZD/USD would be surprising. News on Omicron has been mixed and there hasn’t really been much to alter the macro narrative. European nations continue to assess whether tighter curbs are required to reduce transmission and cases are surging in the US, which is bad, but the good news is that evidence continues to suggest that Omicron is milder than delta.

According to analysts at ING, the couple of weeks either side of Christmas day usually see low volatility for currencies, though they caution that “this year some seasonal tendencies will be mixed with the Omicron variant threatening to force new restrictions and markets still processing a week full of key central bank decisions”. So even if NZD/USD is able to break to the north of the 0.6800 level, it seems unlikely that it would break substantially above earlier December highs in the 0.6830-0.6860 area.