NZD/USD rallies 0.6950 area, hits its highest since late November amid risk-on flows

• NZD/USD pushed to its highest level since late November in the 0.6950 area on Tuesday.
• The kiwi’s rally on Tuesday comes amid strong risk appetite and a broad push higher in the global equity space.
• NZD also has the added tailwind of one of the most hawkish central banks in the G10 in the RBNZ.

NZD/USD rallied to the 0.6950 area on Tuesday and, in doing so, pushed to its highest level since late November. At current levels almost bang on the round figure, the pair is trading with gains of just shy of 1.0% on the session and is up more than 1.2% versus Asia Pacific session lows in the 0.6860s. Indeed, the kiwi is the best performing G10 currency on the day by a reasonably significant margin, despite a weakening in Consumer Sentiment in Q1 2022 versus Q4 2021 according to the latest release by Westpac.

The kiwi’s impressive rally on Tuesday comes amid strong risk appetite and a broad push higher in the global equity space – conditions typically good for the likes of NZD and AUD. But the kiwi (and Aussie) are also benefitting from their relative distance to the Ukrainian conflict versus, say, the likes of NOK, SEK and other more risk-sensitive European currencies. Indeed, if investors are looking to allocate towards a currency that 1) can benefit from risk-on, 2) can benefit from higher commodities and 3) is less exposed to the negative economic effects of the Ukraine war, the kiwi (and Aussie) pretty much tick all boxes.

The kiwi also has the added tailwind of one of the most hawkish central banks in the G10 in the RBNZ. The RBNZ is already well ahead of the Fed in the current hiking cycle and things are expected to stay that way with the bank likely to lift interest rates in 50bps intervals at coming meetings. That might explain why the kiwi has been able to rebuff post-hawkish Fed USD strength better than most of its other G10 peers.

Looking ahead, the major drivers of risk appetite (geopolitics, Fed rhetoric etc.) will remain important for NZD/USD. There isn’t anything of importance on the New Zealand economic calendar this week, but FX traders should keep an eye on a barrage of Fed speak throughout the rest of the week that will give more insight into which policymakers support what tightening path ahead, plus US flash March PMIs on Thursday.