NZD/USD pulls back to 0.6750 area after failing at big figure as risk appetite deteriorates

• NZD/USD has pulled back a little from session highs near 0.6800 level and is back the 0.6750 region.
• Risk appetite worsened during US trade with markets fretting about the global economic impact of the Russo-Ukraine war.

NZD/USD has pulled back a little from session highs near but slightly below the 0.6800 level and is back the 0.6750 region, where it trades lower by about 0.2% on the day. Risk appetite took a turn for the worse during US trading hours as market participants fretted about the impact that the Russo-Ukraine war and associated massive Western sanctions on Russia will have on the global economy.

Indeed, surging commodity prices on Tuesday as traders realized massive financial sanctions on Russia might hamper its ability to export key goods like energy, some base metals and some agricultural products was a key factor weighing on sentiment. The commodity price surge that saw oil prices near their 2014 peaks and wheat futures hit their highest since 2008 has naturally helped cushion some of the losses incurred by commodity-sensitive currencies such as the kiwi against the safe-haven US dollar.

That explains why the typically higher beta kiwi is currently set near the middle of the G10 performance table for the day. Rhetoric from regional Fed Presidents including Loretta Mester and Raphael Bostic on Tuesday highlighted that the Fed is well aware of upside inflation risks/downside growth risks as a result of the Russo-Ukraine war. But the policymakers unsurprisingly signalled that the Fed’s path remains towards the removal of policy support. This didn’t impact the dollar much, just as strong ISM Manufacturing PMI data earlier in the day failed to.

There will be plenty more Fed speak and US data this week that would normally garner much fanfare, but is this week likely to play second fiddle to geopolitical events and related swings in risk appetite. NZD/USD traders will be eyeing whether the pair can rediscover some directional momentum in the near term that could take the pair out in the low-0.6600s to 0.6800 range that has prevailed over the past few days.