The New Zealand dollar has stabilized after starting the week with sharp losses. In the North American session, NZD/USD is trading at 0.6754, unchanged on the day. The currency remains close to a 12-month low.
Fed expected to accelerate taper
All eyes are on the FOMC policy meeting on Wednesday. Now that the Powell & Co. have officially retreated from the ‘transitory inflation’ label, there are strong expectations that the Fed will follow up by accelerating its taper and raising rates sometime in mid-2022. The Fed is likely to double the pace of the taper, from USD 15 billion/mth to USD 30 billion/mth, starting in January. This means that the bond purchase scheme will wind up in March and the Fed will be in a position to hike rates. The dot plot at the upcoming meeting is expected to show that policymakers have become much more hawkish than in previous meetings.
RBNZ Governor Frank Orr testifies today before a parliamentary committee, and this event could be a market-mover for the New Zealand dollar. The bank had planned a series of rate hikes extending into 2022, but the Omicron variant has become a significant wild card which could upend the plans of the RBNZ to raise rates. If Orr hints at a suspension of rate hikes due to Omicron, the New Zealand dollar could lose ground.
New Zealand will release GDP for Q3 on Thursday. We are likely to see negative growth during this period, since Auckland, the country’s largest city was under lockdown in August and September. There were dire predictions of a huge decline in growth, including the RBNZ, which projected a -7% reading in November. However, recent economic data has been solid, which has resulted in a consensus of around -4%. If the forecast is within expectations, it remains to be seen if investors give the economy a thumbs down, or will they be relieved that the economy didn’t slide by -7%. It will be interesting to see how the New Zealand dollar responds to the GDP report.
NZD/USD Technical
- There is resistance at 0.6835. Closely above is resistance at 0.6875
- NZD/USD has support at 0.6749. Below, there is support at the round number of 0.6700
