NEW ZEALAND DOLLAR, NZD/USD, Q4 INFLATION, FOMC, TECHNICAL OUTLOOK – TALKING POINTS

January 26, 2022

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New Zealand Dollar weakness versus the US Dollar pushed NZD/USD to fresh low
The next 24 hours offers plenty of event risks, with Fed decision and NZ CPI due out
NZD/USD may be susceptible to further losses after the 2021 low gave way

WEDNESDAY’S ASIA-PACIFIC OUTLOOK

NZD/USD, Q4 INFLATION: The New Zealand Dollar’s woes versus the US Dollar continued overnight, with NZD/USD dropping to a fresh yearly low of 0.66602, slightly below yesterday’s low of 0.66602. The risk-sensitive currency has been taking it on the chin amid a deep bout of risk aversion. China’s tech-heavy CSI 300 index dropped to its lowest level since July on Tuesday, falling over 2%. US markets have been punished especially hard, with the Nasdaq 100 index (NDX) falling deeper into correction territory overnight.

New Zealand’s fourth-quarter consumer price index (CPI) will cross the wires tomorrow, with analysts expecting a big 5.8% year-over-year figure. That may help cull some Kiwi Dollar weakness, but with an already aggressive rate outlook for the Reserve Bank of New Zealand, the currency will likely be more sensitive to disappointing data. Currently, markets are pricing in six full 25 basis point rate hikes for the RBNZ this year, according to overnight index swaps (OIS).

While the Australian Dollar is down sharply this month versus the Greenback, it is performing exceptionally well versus the New Zealand Dollar. AUD/NZD is up over half a percentage point since January 01, adding to December’s 1.56% gain. The divergence between the two APAC currencies can be explained by the baked-in rate hike expectations faced by NZD while AUD benefits from more upside in that regard given that the RBA has so far not hit the gas on normalizing policy.

NZD/USD Q4 INFLATION

The Bank of Japan’s (BoJs) Summary of Opinions outlining the consensus view of the board members was released this morning with little impact on the Japanese Yen. The BoJ tweaked its policy through its inflation outlook earlier this month, but the central bank remains exceedingly dovish compared to its major peers. The Japanese Yen is around 1% lower against the Greenback since the start of the year.

Elsewhere, Australian stock and bond markets will be closed for a national holiday. The Federal Reserve’s policy decision will cross the wires tonight, which could cause a volatile market reaction on the outside chance of a 25 basis point rate hike. However, if the Fed holds, then markets may go risk-on given that markets have already seen a deep repricing going into the event.

NZD/USD TECHNICAL FORECAST

NZD/USD is seeing a slight bounce after its overnight decline. However, the overall technical structure is inherently bearish following the 2021 low giving out. Breaking back above the 2021 low at 0.6699 may help revive some upward energy. Further losses may drag prices down to the 161.8% Fibonacci extension from the December range.