• NZD/USD remains subdued underneath the 0.6850 level after finding resistance at an uptrend and monthly highs.
  • The pair is on course to end the year about 4.8% lower, outperforming AUD on an annual basis.

NZD/USD is trading in a stable fashion just underneath the 0.6850 with New Zealand having now already welcomed in the new year. The pair found resistance at an uptrend that has been capping the price action since early December on Thursday and this, combined with prior monthly highs in the 0.6860s, has kept the currency pair subdued to the south of the 0.6850 mark. Most likely, amid holiday-thinned trading conditions where European markets have already closed for New Year’s Eve and volumes are very low, NZD/USD will continue to trade within its recent intra-day 0.6810s-0.6850 range into the year’s end.

NZD/USD’s gains on the month stand at a modest 0.2%, with the kiwi underperforming the Aussie by a surprising degree in December. For reference, the Aussie is set to gain about 1.9% versus the US dollar. However, NZD/USD is set to close out the year with losses of about 4.8% versus the buck, which is not nearly as bad as the Aussie’s 5.7% (at current prices) loss. Both currencies lost ground versus the US dollar amid a hotter than expected recovery in the US economy and labour market sparking a much larger and longer than anticipated surge in US inflation, thus triggering a hawkish pivot at the Fed. The fact that the New Zealand economy has been running comparatively hotter than the Australian economy, thus prompting the RBNZ to have axed its QE programme long ago and hike interest rates twice, seems to have supported the NZD over AUD.

But as indicated by the divergence in the two currencies’ December performance, investors are clearly doubtful about whether NZD outperformance against the Aussie can continue into 2022. The RBNZ has been known to be the G10’s most hawkish central bank for some time and the risks seem more tilted towards the bank underdelivering rather than overdelivering. Meanwhile, the RBA has room to pivot substantially in a more hawkish direction. While the RBA hasn’t yet conceded that its first post-pandemic rate hikes could be coming any sooner than 2023, markets are priced for the bank to start hikes in 2022 in tandem with the Fed. Strategists might argue that there is thus also substantial room for the RBA to disappoint.

This article was originally published by Fxstreet.com.Read the original article here.