NZD/USD falls back to test key 0.6900 support area as buck strengthens post-Fed minutes

• NZD/USD fell to test key support around 0.6900 in recent trade as the US dollar picked up post-Fed minutes.
• The pair was also weighed on Wednesday as global equity and commodity prices fell.

A sharp decline in global equity and commodity prices plus a pick up in the strength of the US dollar in wake of a hawkish Fed minutes release saw NZD/USD fall back to test the 0.6900 level on Wednesday. For now, support at the big figure in the form of last Friday’s lows, the 21-Day Moving Average at 0.6897 and the 200-Day Moving Average at 0.6906 is holding up and the pair has rebounded into the 0.6910s.

But it nonetheless still trades with losses of about 0.4% on the day, with the kiwi also facing headwinds in the form of a significant weakness in its antipodean counterpart the Aussie. At current levels, NZD/USD now trades more than 1.5% lower versus earlier weekly highs in the 0.7030s.

The kiwi’s recent depreciation versus the US dollar is in fitting with that seen across G10 markets, as deteriorating risk appetite spurs safe-haven FX flows and markets bet on an ever more aggressive approach from the Fed to monetary tightening in the coming year.

With NZD/USD for now holding up well above key support in the 0.6900 area, many kiwi bulls will remain confident. Even in the face of rocky risk appetite conditions and hawkish repricing of Fed expectations, the kiwi has shown in recent weeks that it can perform well.

Recent strong performance since Russia’s invasion of Ukraine (NZD/USD still trades over 4.0% higher versus 24 February lows) has its roots in the rise in global commodity prices. As long as commodities continue to trade at elevated levels versus prior to the start of the war (some commodity strategists have argued the war means “structurally higher” commodity prices), NZD/USD retains a strong chance of rallying back above 0.70.