NZD/USD dips back under 0.6800, as kiwi continues to lag G10 peers

• NZD/USD dipped back under 0.6800 in recent trade, though support has come in ahead of the 21DMA.
• The pair may struggle for conviction this week amid holiday thinned trading conditions.
• Next week’s heavy US data slate could offer FX markets some impetus.

NZD/USD has dipped back under the 0.6800 level in recent trade and now trades lower on the session by about 0.2%. The pair failed to emulate its risk-sensitive peers AUD/USD and GBP/USD, which both managed to eke out fresh December/multi-week highs earlier in the session. Indeed, during Asia Pacific trade, the kiwi couldn’t even reach 0.6830, meaning it didn’t even come close to testing this month’s 0.6867 highs set back on 1 December.

On the week, NZD now trades about 0.3% lower versus the US dollar, compared with the Aussie which is flat and sterling which is still 0.3% higher. Compared to last week’s lows, NZD/USD is just 1.3% higher, compared to AUD/USD and GBP/USD, both of which are about 2.0% higher.

For now, the 21-day moving average at 0.6785 is likely to provide a floor for NZD/USD, with FX markets likely to remain fairly rangebound for the rest of the session and perhaps week. Many European and US market participants are away this week for Christmas/New Year’s celebrations meaning thin liquidity and low volumes. FX markets are likely to find some more conviction next week when the economic calendar also spices up again. There isn't any notable data out of New Zealand for a few weeks, but the official December US labour market report and December US ISM PMI surveys are out next week.

Both should point to ongoing strength in the US economy that should vindicate the Fed’s recent guidance that three rate hikes are possible in 2022. NZD/USD failure to recover back to the north of recent December ranges suggests that in the new year when FX market volumes (and conviction) returns, the pair will be vulnerable to a correction lower towards December lows just above 0.6700.