NZD/USD bounces from 200DMA, surges into upper 0.6900s

• NZD/USD is trading sharply higher on Monday, with the pair having jumped 0.6% to the 0.6960s.
• The pair has shrugged off Russo-Ukraine pessimism and recent hawkish Fed speak after bouncing at its 200DMA.
• It is now eyeing a test of recent highs at 0.7000, aided by buoyant equity markets.

NZD/USD is trading sharply higher on Monday, with the pair having jumped 0.6% to the 0.6160s after finding solid demand earlier in the session at the 200DMA just above 0.6900. Hawkish Fed commentary from the weekend which alluded to faster rate hikes (in 50 bps intervals) and imminent QT, as well a deterioration in the tone of Russo-Ukraine developments after evidence of widespread atrocities committed by the Russian military in Ukraine’s north emerges has failed to dent risk appetite in the FX space.

Indeed, though the growing pile of evidence of war crimes committed by Russian troops against Ukrainian civilians throws a dark cloud over Russo-Ukraine peace talks, global equity market are trading firmly on the front foot. This is giving the likes of the risk-sensitive kiwi and its other risk-sensitive G10 peers a lift, but the New Zealand dollar is also gaining (alongside AUD) as a result of its exposure to commodity prices, which are again broadly on the front foot.

In recent weeks, commodity-sensitive G10 currencies like the kiwi have been in demand, despite broader risk appetite, given expectations that country’s like New Zealand and Australia, who are located geographically far from Ukraine, will benefit from structurally higher commodity prices as a result of the war there. Looking at NZD/USD from a technical standpoint, the pair looks to very much still be in the pattern of posting higher highs and higher lows that has been in play since late January.

The fact that the pair found such strong support at its 200DMA on Monday will be taken as a bullish technical signal and makes a test of recent annual highs in the 0.7000 area this week likely. A break above 0.7000 could potentially open the door to a move towards Q4 2021 highs in the 0.7200 area. So long as the risk/commodity backdrop remains favourable and the RBNZ remains ahead of the Fed in terms of the tightening of monetary policy, a push to these levels is definitely on the cards.