New Zealand dollar pares sharp gains

The New Zealand dollar has posted gains on Wednesday. In the North American session, NZD/USD is trading at 0.6306, up 0.49%. Earlier in the session, NZD/USD climbed around 1% but has since pared some of those gains.

China reopening boosts New Zealand dollar

Trading has been thin in the days after Christmas, and there are no Chinese or New Zealand events on the calendar. Still, the New Zealand dollar was busy and posted sharp gains earlier in the day. The driver behind the New Zealand dollar’s surge was China’s announcement that international travelers would no longer have to be quarantined when arriving on the mainland. This is a hugely significant move, as China continues its reopening measures in a sharp shift from its zero-covid policy which was in place until just a few weeks ago.

Why has China made a complete U-turn in its covid policy, from zero tolerance to relaxing restrictions? There were some unprecedented demonstrations earlier this month against zero-covid, but the government was likely more concerned over the sharp slowdown in the economy that resulted from extended lockdowns in Shanghai and other large cities. The relaxation in Covid restrictions has, predictably, resulted in a surge in Covid infections which is expected to intensify in the coming days. Still, authorities are hoping they can contain the pandemic while the economy gains traction as restrictions continue to be lifted.

The gains by the New Zealand dollar reflect the impact that developments in China can have on the currency. China is New Zealand’s largest trading partner and stronger growth in China will give a big boost to New Zealand exports. NZD/USD rocketed 8.2% in November, taking advantage of a retreating US dollar. However, the kiwi rally has run out of steam in December, with NZD/USD almost unchanged this month.

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NZD/USD Technical

• NZD/USD is testing resistance at 0.6309. Above, there is resistance at 0.6386
• 0.6208 and 0.6131 are providing support

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