NZD/USD bounces off from new year-to-date low at 0.6787, towards 0.6800

• The New Zealand dollar slides, despite reclaiming the 0.6800, as the market assesses the impact of the omicron variant.
• COVID-19 omicron variant causes “mild” symptoms, according to SA health authorities
• Fed policymakers would like to increase the pace of the bond taper, according to FOMC’s last meeting minutes.

During the New York session, the New Zealand dollar continued its free fall versus the greenback, reaching a new year-to-date low at 0.6787, though it bounced off that level, trading at 0.6804 at press time. The market sentiment is upbeat at the time of writing, as major US equity indices print gains between 0.92% and 2.32%, amid COVID-19 omicron variant woes, seem to fade on the back of positive news from South African health authorities. 

COVID-19 omicron variant causes “mild” symptoms, according to SA health authorities

According to the Telegraph, the South African Medical Association chair Angelique Coetzee called symptoms associated with the variant at this point “different and so mild” compared with others she treated in recent months.  She was asked that if authorities worldwide were panicking unnecessarily, Coetzee said, “yes, at this stage, I would say definitely,” as she confirmed not admitting anyone to the hospital with the new variant. 

That said, it seems that investors are assessing current COVID-19 news, with what the World Health Organization(WHO) has to say about it. On Monday, the financial markets seem to have stabilized after Friday’s collapse.

Putting this aside, the NZD/USD has been trading downwards, attributed to the Reserve Bank of New Zealand (RBNZ), disappointing market participants, who were expecting a rate hike of 50 basis points in the Overnight Cash Rate (OCR) on its last meeting. Furthermore, the last Wednesday, the FOMC’s last meeting minutes showed that Fed policymakers would like to increase the pace of the QE’s reduction so that the US central bank could have room to maneuver in the case of inflation stating elevated. That firmly reinforced USD strength against the NZD, which has been adrift since RBNZ’s last meeting.

In the meantime, the US Dollar Index, which tracks the buck’s performance against a basket of six rivals, advances 0.26%, sitting at 96.33, acting as a tailwind for the US dollar.

Meanwhile, analysts of Brown Brother Harriman noted that RBZ chief economist Ha said that “the new variant would have to have a dramatic economic impact to prevent the bank from continuing to hike interest rates.  He added that the bank would have hiked last week even if omicron was known then, stressing it’s not the same as August when RBNZ delayed a hike due to a just-announced lockdown.”

That said, the fall on the NZD/USD could be viewed as an opportunity for NZD bulls to open fresh bets, as the RBNZ is looking forward to hiking rates again, faster than the Federal Reserve.