NZD/USD slides back under 0.6750 to pre-Fed levels amid risk-off end to week

• NZD/USD fell sharply on Friday, falling back under 0.6750 amid kiwi underperformance.
• The pair’s mid-week post-Fed rally above 0.6800 appears looks to have been nothing more than a dead cat bounce.

NZD/USD’s mid-week post-Fed rally appears looks to have been nothing more than a dead cat bounce. After running out of upwards momentum just shy of its 21-day moving average at 0.6840 (at the time, it's now dropped to just above 0.6820), NZD/USD has dropped all the way back to roughly in line with its pre-Fed levels and below the 0.6750 mark. On the day, that means it is now down about 0.75%, making it the second-worst performing G109 currency after SEK.

While a deterioration in the New Zealand NBNZ Business Outlook index to -23.2 in December from 16.4 in November and in the NBNZ Own Activity index to 11.8 from 15.0 may be behind the kiwi’s underperformance on the day versus of AUD and CAD, the main driver of the downside for NZD/USD on Friday has been a downturn in the market’s broader appetite for risk. US equities are lower with underperformance seen in cyclical stocks, US yields are lower, crude oil is lower. All typical of risk-off conditions.

There isn't exactly one theme driving the caution, but traders/market participants continue to fret about themes such as the rapidly accelerating global spread of Omicron as well as the increasingly hawkish shift of tone/policy at major central banks. Recall that the Fed doubled its QE taper speed and indicated as many as three rate hikes in 2022, the BoE actually did hike rate by 15bps (to everyone surprise!) and the ECB laid out its plans to taper its pandemic era bond-buying programme.