NZD/USD unable to reclam 0.6800 level ahead of US data, as US economic optimism builds and yields rise

• NZD/USD has failed to reclaim 0.6800 ahead of US data, with the 21DMA at 0.6788 acting as a magnet.
• The pair risks incurring further losses if optimism about the US economic outlook/prospect of Fed tightening continues to build.

NZD/USD’s failure to reclaim the 0.6800 despite multiple attempts during Asia Pacific and early European trading hours seems to have been taken as a bad omen and the pair dipped as low as the 0.6760s in recent hours. Ahead of the release of the key US ISM Manufacturing PMI for December and JOLTS Job Opening report for November at 1500GMT, the pair is in consolidation mode close to 0.6780, where it trades broadly flat on the day. That follow’s Monday’s US yield surge-fuelled tumble that saw the pair drop back from the mid-0.6800s, a 0.9% decline at the time, which was the pair’s worst performance since 17 December.

As optimism about the US economic outlook in 2022 pushes equities and yields higher there and fuels expectations that the Fed will live up to or perhaps even exceed monetary tightening expectations this year, USD upside risks are growing. That could bode poorly for NZD/USD, even if the RBNZ is well ahead of the Fed when it comes to monetary tightening. The absence of notable New Zealand data this week to spur hawkish RBNZ repricing, versus an abundance of US releases and Fed speak means risk for the pair lay to the downside. Short-term bears may be eyeing an eventual push lower to support around 0.6700.

For now, though, the 21-day moving average at 0.6788 continues to act as a magnet. One notable risk to keep an eye on for NZD/USD is whether New Zealand follows in the footsteps of Australia and endures an Omicron-fuelled surge in Covid-19 cases in the coming weeks/months. Whilst in other parts of the world this hasn’t led to a surge in critical illness and lockdowns, the New Zealand government has a track record of enacting much more forceful measures. If there is a meaningful New Zealand outbreak, it will be interesting to see whether the kiwis follow in the footsteps of the Aussie by placing their faith in the fact that the country’s high vaccination rate will protect people rather than reverting to lockdowns.