NZD/USD Mixed after Avoiding 2023 Lows & Ahead of the RBNZ
NZD/USD Analysis
The USDOLLAR is having a great month, boosted by the change in expectations around the Fed's policy path, after the recent surprisingly strong jobs report, last week's higher than expected inflation figures (CPI & PPI) and another round of hawkish Fed commentary.
Markets did not believe that the central would raise rate by as much as its dot-plot implied and its higher-for-longer approach, but have embraced this narrative following latest data and communication. At the time of writing, CME's FedWatch Tool assigns the highest probability to a terminal rate of 5.50%, which suggests another 75 basis points worth of hikes. [1]
The Reserve Bank of New Zealand meanwhile is one of the most hawkish central banks, having delivered a historic 0.75 rate increase in its last meeting back in November, bringing the Official Cash Rate (OCR) to 4.25% [2] and the highest since early 2009. It had also upgraded its projection, expecting the OCR to peak at 5.5% this year (from 4.4% previously). [3]
This week starts on a subdued note, with Wall Street closed today, but things heat in the second half, with important releases. The RBNZ announces its latest policy decision on Wednesday, along with its updated projections. CPI Inflation steadied at 7.2% y/y in the fourth quarter, while unemployment ticked up to 3.4% and officials may feel the need to climb down form the last outsized move on rates.
Later on the same day, we expect the accounts of the Fed's last policy meeting when it had further slowed its pace of tightening, with more economic data due later in the week. Markets also monitor the renewed tensions in US-China relations, which can weigh on sentiment. Speaking on CNBC's Meet the Press, Secretary of State Blinken said that he let his Chinese counterpart know that the recent balloon incident "was unacceptable and can never happen again", while expressing concerns that "China's considering providing lethal support to Russia in its aggression against Ukraine". [4]
NZD/USD is having a bad February, following its four-month profitable streak and its trajectory will be determined by the aforementioned key events and data. On Friday it managed to avoid new 2023 lows and this gives the opportunity to challenge the EMA200 (0.6270-4). Successful effort will shift immediate bias to the upside and can open the door to 38.2% Fibonacci of the recent drop (0.6325).
Despite the bounce, NZD/USD still closed last week with losses and is in risk of lower lows towards 0.6146, but further slide that would test 0.6059-25 would need a strong catalyst.
Nikos Tzabouras
Senior Market Specialist
Nikos Tzabouras is a graduate of the Department of International & European Economic Studies at the Athens University of Economics and Business. He has a long time presence at FXCM, as he joined the company in 2011. He has served from multiple positions, but specializes in financial market analysis and commentary.
With his educational background in international relations, he emphasizes not only on Technical Analysis but also in Fundamental Analysis and Geopolitics – which have been having increasing impact on financial markets. He has longtime experience in market analysis and as a host of educational trading courses via online and in-person sessions and conferences.
References
| Retrieved 19 Feb 2023 https://www.cmegroup.com/markets/interest-rates/cme-fedwatch-tool.html | |
| Retrieved 19 Feb 2023 https://www.rbnz.govt.nz/hub/news/2022/11/higher-interest-rates-necessary | |
| Retrieved 19 Feb 2023 https://www.rbnz.govt.nz/-/media/6f94404804da43e0a2257ea5c44fc825.ashx | |
| Retrieved 11 May 2023 https://www.state.gov/secretary-antony-j-blinken-with-chuck-todd-of-nbc-meet-the-press-3/ |
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