NZD/USD fends off 0.7000 for now, but set to end the week sharply lower

• NZD/USD is currently flat, having rebounded from an earlier test of the 0.7000 level.
• The pair is set to end the week sharply lower, however, after hot US inflation triggered broad USD strength.

FX market conditions are broadly subdued so far this Friday and NZD/USD is no exception, with the pair currently trading flat on the day around the 0.7020 mark, having recovered from a test of the 0.7000 level during the Asia session. Given the partial closure of US markets on Thursday for Veteran’s Day, liquidity conditions are thinner than usual for a Friday, likely indicative of the fact that many US market participants took a long weekend’s holiday.

Things have been pretty quiet in terms of fundamental developments this week in New Zealand. The main focus in markets there is on the gradually rising full vaccination rate in the country that should soon hit the 90% threshold set by the government as a condition for full removal of lockdown restrictions. For Auckland, where restrictions are toughest, that lockdown easing is scheduled to come at the end of the month and should see shops allowed to reopen. Focus will then be on whether the government and health authorities can stomach a surge in Covid-19 infections amongst the vaccinated (as seen in other parts of the world with a high vaccination rate such as Europe and the US in recent months).

NZD/USD looks set to end the week with fairly sharp losses of about 1.2%, most of which were accrued in the immediate aftermath of Wednesday’s much hotter than expected US Consumer Price Inflation report for October, which triggered a spike in US bond yields and prompted an aggressive hawkish repricing in USD STIR markets. That mark’s the pair’s worst week since mid-August when snap lockdowns were announced, thus delaying a previously widely expected first rate hike from the RBNZ. The RBNZ’s relative hawkishness vs the Fed may shield the pair from further USD advances and next week could see a tentative recovery back toward’s the pair’s 50DMA just above 0.7060.