Fundamental Overview
The USD continues to consolidate around the highs except against the commodity currencies where it extended into new highs. The US inflation data last week was once again a disappointment although the data that feeds into the Core PCE was overall benign as forecasters expect a 0.13% M/M increase.
Nonetheless, the Treasury yields have continued to climb and are now back around the post-US election highs. There’s some understandable uneasiness in the bond market given the hot US data and the Fed continuing to cut into an accelerating economy.
The Fed today is expected to cut by 25 bps bringing the FFR to 4.25-4.50%. We will also get the updated Summary of Economic Projections (SEP) where growth and inflation should be revised upwards, and the Dot Plot will likely show two rate cuts in 2025. Fed Chair Powell should acknowledge the strength in the US data and announce a slowdown in the pace of easing.
This is already priced in as the market expects just two rate cuts in 2025, with the first one coming in March at the earliest. Therefore, the market reaction will be driven by deviations from the expectations.
On the NZD side, the RBNZ cut interest rates by 50 bps as expected recently. We haven’t got any fresh New Zealand data in the meantime, but the market increased the chances for a 50 bps cut in February to 87% with a total of 108 bps of easing by the end of next year.
NZDUSD Technical Analysis – Daily Timeframe
On the daily chart, we can see that NZDUSD broke through the 2023 low around the 0.5773 level. There isn’t any notable support now until the 2022 low around the 0.55 handle. From a risk management perspective, the sellers will have a better risk to reward setup around the trendline to position for new lows, while the buyers will look for a break higher to start targeting the 0.6050 resistance next.
NZDUSD Technical Analysis – 4 hour Timeframe
On the 4 hour chart, we can see that we have another minor downward trendline defining the current bearish momentum. The sellers will likely lean on the trendline to keep pushing into new lows, while the buyers will look for a break higher to target a bigger pullback into the major trendline.
NZDUSD Technical Analysis – 1 hour Timeframe
On the 1 hour chart, there’s not much else we can add here as the sellers will look for a rejection from the trendline, while the buyers will look for a break to the upside. The red lines define the average daily range for today.
Upcoming Catalysts
Today, we have the FOMC Policy Decision. Tomorrow, we get the latest US Jobless Claims figures. On Friday, we conclude the week with the US PCE data.
