Kiwi Comes Under Pressure
Another week comes to a close in financial markets, and we’re also rounding out the first month of the year. I hope it’s been a great start to the year for you all. In terms of market action this week, there’s been plenty going on, however, it seems that the move catching the most attention is the rally in USD and, in the FX space, the pair which has seen the biggest shift is NZDUSD. So, let’s take a look at what caused this move and, as always, if you caught it? Well done! If not? There’s always next week.
What Caused The Move?
USD Rally Back On
There have bene a couple factors which contributed to the roughly 2.5% drop in NZDUSD this week. The first has been the uptick in USD which has weighed particularly hard on higher-beta currencies such as NZD. The January FOMC this week saw the Fed greenlighting a rate-hike in March. The Fed was decisively hawkish in its language, satisfying the market’s hawkish expectations and reigniting the USD rally which had been on pause over late December/early January. With the greenback riding high, equities and commodities prices have come of sharply weakening capital flows for NZD. Looking ahead, this theme looks likely to remain in place while US data supports.
NZ Lockdown Returns
The other factor weighing on NZDUSD is news, which came over the weekend, of a fresh nationwide lockdown in New Zealand, in response to a small outbreak of omicron. The news of the return of the strictest measures, including a closing of the borders, has been met with dismay and has turned sentiment sharply sour towards NZD given the expected economic hit of yet another lockdown there. While other country’s central banks are pressing ahead with tightening schedules and monetary policy normalisation, expectations of RBNZ tightening have been pushed further out in light of this latest development.
Technical Views
NZDUSD
The rejection at a retest of the .6863 level has seen the market reversing sharply with price breaking down out of the bear flag structure and below the bigger bear channel low. Price is now fast approaching the .6512 level. With both MACD and RSI firmly bearish here, the focus is on a continuation lower while price holds below the .6703 level.
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With 10 years of experience as a private trader and professional market analyst under his belt, James has carved out an impressive industry reputation. Able to both dissect and explain the key fundamental developments in the market, he communicates their importance and relevance in a succinct and straight forward manner.