NZD/USD trading heavy in mid-0.6600s as Russia’s Ukraine assualt batters FX market sentiment

• NZD/USD has pulled back sharply from Wednesday’s post-RBNZ highs above 0.6800 to the 0.6660 area as Russia invades Ukraine.
• As the fighting continues and amid uncertainty regarding the NATO response, risks remain tilted to the downside.

Wednesday’s post-hawkish RBNZ optimism that helped lift NZD/USD briefly to the north of the 0.6800 level is now well in the rear-view mirror, with NZD/USD having now reversed more than 2.0% lower from its earlier weekly peaks. Though the move didn’t come as too much of a surprise to geopolitical strategists and news addicts, Russia’s decision to initiate an invasion against Ukraine on Thursday seemed to catch global FX markets off guard. FX investors have piled into safe-haven currencies like the US dollar at the expense of more risk-sensitive currencies like the New Zealand dollar.

At current levels in the 0.6660 area, NZD/USD trades about 1.6% lower on the day, the pair having seemingly found some short-term support at its 21-Day Moving Average at 0.6650. A more than 1.5% drop is a big one-day move for NZD/USD and, typically, would be followed by some consolidation/mean-reversion. But with the geopolitical situation regarding Russia’s ongoing assualt into Ukraine fluid, such a bet would be risky. Price action is likely to remain heavy and risks tilted to the downside for NZD/USD as the war continues and the world waits to see how the US/EU will respond.