NZD/USD pauses on the way to 0.6800 after biggest daily gains in two months

• NZD/USD led G10 currencies with the heavy gains before bulls take a breather at weekly top.
• Hopes of no harsh lockdowns before Christmas, hopes of US stimulus favor market optimism despite Omicron woes.
• Sino-America, US-Russia tussles continue, New Zealand virus cases ease.
• A slew of US data can offer a busy day, risk catalysts are important too.

NZD/USD seesaws around 0.6770 during early Wednesday morning in Asia, after a stellar bullish performance the previous day. The kiwi pair rallied the most among the G10 currencies, also posted the biggest daily gains in two months, before the latest sideways moves.

Receding fears of the South African covid variant, dubbed as Omicron, could be linked to the latest market optimism amid a quiet economic calendar. Adding to the upbeat sentiment could be US President Joe Biden’s expectations of getting the “Build Back Better (BBB)” plan done as well as vaccine/treatment optimism.

Despite teasing a push-back to the border re-opening plan to late February, versus previously signaled early January, Omicron fears abate in New Zealand. Receding virus numbers and hopes of faster vaccinations could be linked for the same. That said, Auckland’s seven-day average cases dropped to the lowest since late October. Further, the government eyes faster jabbing to match Australia’s 90% vaccinations. Additionally, the news that New Zealand will reduce booster gap wait to 4 months, from previously 6, also helps the NZD/USD bulls.

On a broader front, “President Biden on Tuesday said he thinks there is still a possibility that his Build Back Better agenda can get done, despite Sen. Joe Manchin’s opposition of the climate and social spending bill,” said The Hill. Additionally, US President Biden and UK PM Boris Johnson’s rejection of fresh lockdown measures before Christmas also underpins the risk-on mood.

Alternatively, the US appoints a new Tibet Coordinator amid tensions with China while the tension with Russia continues. “New export control measures being discussed by the US could halt Russia import of smartphones, key aircraft and automobile components,” said Reuters.

Talking about data, New Zealand’s Credit Card Spending improved in November from a revised down -5.2% to -0.1% versus -2.1% market forecast. Further, New Zealand ANZ – Roy Morgan Consumer Confidence (Dec) improved from 97 to 98.

While portraying the risk-on mood, which also helped NZD/USD prices, the US Treasury yields rose 4.8 basis points (bps) to 1.467% whereas the Wall Street benchmarks snapped a three-day downtrend by the end of Tuesday’s North American session.

Looking forward, Omicron updates will be crucial before the US market opens when a slew of data including US Q3 GDP, Core Personal Consumption Expenditures for the third quarter and Chicago Fed National Activity Index will precede Existing Home Sales to entertain the markets.

Technical analysis

NZD/USD buyers attack the monthly resistance line, near 0.6775 by the press time, amid bullish MACD and recovering RSI, suggesting further advances of the Kiwi pair. However, the 21-DMA level around 0.6790 adds to the upside filter before convincing even short-term buyers.

Alternatively, pullback moves will eye for the yearly low surrounding the 0.6700 mark. Following that, the 61.8% Fibonacci Expansion (FE) of November 23 to December 16 moves, around 0.6670, will offer an intermediate halt during the likely slump towards November 2020 low near 0.6590.