NZD/USD registers moderate losses as vaccine euphoria fades

NZD/USD is flashing red on Tuesday as concerns over rising coronavirus cases and prospects of fresh lockdowns dampen the euphoria from vaccine trial breakthroughs.

The pair is currently trading near 0.6885, representing a 0.10% drop on the day, having declined from 0.6919 to 0.6875 on Tuesday. The latest weakness in the Kiwi is accompanied by a pullback in the New Zealand bond yields. The 10-year yield is currently trading at 0.85%, down three basis points on the day, having reached a high of 0.92% on Tuesday. 

Risk-off

Risk sentiment has soured with the rising number of coronavirus cases in the US, across Europe, and in some Asian nations. Notably, more than 70,000 Americans were hospitalized for treatment of COVID-19 on Monday, forcing authorities to restrict gatherings and made face masks. That has revived fears of fresh lockdowns, which brought the US and global economy to a near standstill in the second quarter. 

As such, Kiwi, AUD and other risk assets such as equities are losing ground. However, so far, losses have been moderate as the recent announcements of positive results of experimental vaccines by drugmakers Pfizer and Moderna have boosted speculation of a swift economic recovery in 2021. Also, the downside in NZD remains supported by hopes that the Federal Reserve (Fed) would do the heavy lifting to compensate for the US Congress' inability to deliver the fiscal stimulus. The Fed recently expressed a willingness to do more if needed. 

Should the risk aversion worsen, the NZD/USD pair would suffer a deeper pullback. That possibility cannot be ruled out, as stocks seem to have run ahead of themselves in pricing a vaccine-driven economic recovery.

Technical levels