NZD/USD back below 0.7100 as risk appetite sees Friday fade

• NZD/USD is back to the 0.7070s following another trip north of 0.7100.
• A downturn in the market’s appetite for risk and an uptick in USD is the blame for the Friday slide.

NZD/USD managed to set fresh multi-year highs above the 0.7100 level again early on during Friday Asia-Pacific trade. However, since the start of Friday’s European session, risk appetite has taken a turn for the worse and the pair has dropped back into the 0.7070s. On the day, the pair currently trades with losses of just under 20 pips or around 0.2%.

Risk appetite drags NZD lower

Friday trade has seen a demand for safe-havens, meaning, in FX markets, JPY and the US dollar have been two of the best performers. Indeed, the Dollar Index (DXY) has risen back towards (although failed to surpass) the 91.00 level. Meanwhile, global equities have taken a knock, bonds have been bid and crude oil markets have slipped. NZD, which has traded as a function of global themes rather than domestic, has thus seen a negative bias for the most part on Friday.

A few factors are behind the market’s defensive trading bias on Friday, but can be summed up as increased concern regarding the lack of progress in Brexit and US fiscal stimulus negotiations begins to weigh on broader market sentiment, as well as a few negative vaccine production/distribution updates.

In terms of the latest on each of these topics, starting with Brexit; UK PM Boris Johnson has echoed the downbeat tone of his EU counterparts on the prospects for a deal to be reached, saying late on Thursday that there is a strong possibility we do not get a deal, a message he reiterated on Friday before adding that negotiations are still deadlocked ahead of the new de-facto Sunday deadline for a deal. However, the German Foreign Minister recently hinted that talks would be able to go past Sunday is needed, seemingly playing down the importance of this date.

On US stimulus talks; a breakthrough remains elusive and Senate Majority Leader Mitch McConnell last night dampened hopes for a deal by saying that he does not see a path to an agreement on the two main sticking points (aid for states and cities and liability protection). Meanwhile, the Senate will need to vote in favour of a one-week stopgap funding bill if it is to avert a US government shutdown from mid-night on Friday.

Finally, in terms of the latest vaccine news, while the FDA voted 17-4 that the benefits of taking the Pfizer vaccine outweigh the risks to over 16 year old and panel will now consider whether to grant the vaccine emergency use authorisation (all as expected), Sanofi and GlaxoSmithKline announced that they had delayed their vaccine development programme in order to improve the immune response that the vaccine provokes in the elderly. A vaccine candidate in Australia was also abandoned.