NZD/USD stays depressed below 0.7200 amid virus fears

• NZD/USD fades bounce off 0.7153, posted heaviest declines in two weeks on Monday.
• Covid woes are back in motion as multiple countries announce lockdown measures.
• Cautious sentiment ahead of Georgia elections and Sino-American tension also weigh on risks.
• Risk catalysts remain as the key driver ahead of US data.

NZD/USD fails to keep the recent corrective pullback while easing back to 0.7170 amid the initial Asian session on Tuesday. The kiwi pair dropped the most since November 22 the previous day as the coronavirus (COVID-19) fears joined cautious mood ahead of Georgia runoff and the US-China tussle to weigh on risks.

Even as global markets are yet to recover from the covid-led economic backlash, fears of the virus strain that has higher infection pace and resilience against vaccines take over the risk sentiment off-late. While the covid variant found in the UK is comparatively less severe than the one traced from South Africa, news that New York marked a fresh case of the virus strain found in Britain challenged the risks off-late.

To tame the virus outbreak, UK PM Johnson announced further activity restrictions while Northern Ireland backs the move. Not only London but Tokyo, and Paris are also among the national taking restrictive measures to tame the virus resurgence. Recently, Japanese media backed speculations that the government is considering a complete ban on all foreign arrivals while targeting the vaccinations in early February.

Read: Coronavirus update: Covid strain mark presence in New York, Norhern Ireland backs stay at home order

Elsewhere, US President-elect Joe Biden recently said a win for Democrats in Georgia will end the block on a $2,000 check. Both Republicans and Democrats are eager to win in Georgia as it will decide who holds the Senate. Hence, cautious sentiment ahead of the elections also weighs on risks. Furthermore, chatters that the US eyes more Chinese companies’ blacklisting and also cites geopolitical fears emanating from Iran to add to the risk-off mood.

Amid these plays, Wall Street benchmarks lost over 1.0% each while the US real yields dropped the most on record at the start of 2021. The risk aversion wave also triggered the US dollar index (DXY) bounce off a multi-month low.

Considering the present dominance of risk catalysts, mainly the virus update, over Antipodeans, NZD/USD may keep the sober mood amid a lack of major data/events even as New Zealand has successfully overcome the pandemic spread earlier.

Technical analysis

Not only fundamentals but technical details also highlight NZD/USD as an important pair to watch. As per FXStreet’s Ross J Burland, “NZD/USD is on the watchlist for both a bullish and bearish prospect, depending on daily and weekly support. A break of weekly support opens the risk for a significant pullback. 

Read: NZD/USD Price Analysis: Conflicting structure across the time frames, make or break time