NZD/USD recovers back to 0.6850 area, lifted by aggressive recovery in global risk appetite

• NZD/USD is on course to stage an impressive rebound on Wednesday as it tracks an impressive recovery in risk appetite.
• It has recovered back to 0.6850, boosted as commodity prices ease and stocks rise on more constructive Russia/Ukraine rhetoric.

NZD/USD is on course to stage an impressive rebound on Wednesday as it tracks an aggressive recovery in the global equity space and benefits from a general improvement in risk appetite as energy and other commodity prices pull back. Though it remains far too soon to say that a ceasefire agreement might be reached, the tone of rhetoric from Ukrainian and Russian officials regarding a diplomatic solution has been more constructive on Wednesday. The Russian and Ukrainian Foreign Ministers will be meeting for talks in Turkey on Thursday and markets seem to be hoping for some sort of de-escalation.

NZD/USD has been able to rally over 0.75% to above 0.6850, rebounding confidently from sub-0.6800 levels hit during Asia Pacific trade. The broad rally in global commodity prices since Russia’s invasion of Ukraine has supported the pair to a more than 1.0% rally so far on the month. But concerns that the rally had gone to far and had gotten to the point where it might tip the global economy into recession saw NZD/USD underperform these last two days. That likely explains why weaker commodities has been a positive for the kiwi on Wednesday.

Ahead, NZD/USD bulls face a challenge in the form of US February Consumer Price Inflation data on Thursday, which is expected to show the headline YoY rate nearing 8.0%. That should solidify expectations for a 25bps rate hike from the Fed later this month and a series of further moves of the same magnitude in the coming months. With the markets having built up a great deal of hope for a ceasefire on Wednesday, should talks between Russian/Ukrainian officials on Thursday not go so well, risk assets may once more come under pressure and the US dollar may be the safe haven of choice given the backdrop of rising US interest rates.