- NZD/USD has recovered from a brief dip below its 50-day moving average at 0.7165, but has failed to reclaim 0.7200.
- The pair is being weighed by a stronger US dollar, which has been given a boost by strong US data.
- Looking ahead, the main driver of price action on Wednesday will be the release of the latest FOMC minutes.
NZD/USD has recovered from a brief dip below its 50-day moving average at 0.7165, with the pair now trading in the 0.7170s. The currency pair lost its grip on the 0.7200 level during Asia Pacific trade and has since fallen back to over one-week lows. At present, the pair is 0.5% or about 40 pips lower on the day.
Driving the day
NZD has been unable to garner any impetus from the fact that the New Zealand government authorities are set to lift a three-day snap lockdown in Auckland, given their confidence that a mini Covid-19 outbreak reported there over the weekend has been brought under control. Looking ahead for the kiwi, Producer Price Inflation data for the final quarter of last year is set to be released at 21:45GMT on Thursday and will be scrutinised for any signs of rising inflation that might concern the RBNZ.
USD traders, meanwhile, will be keeping a close eye on the release of the minutes from the FOMC’s January monetary policy meeting at 19:00GMT. The minutes are expected to show that a majority of Fed members remain opposed to the idea of tapering the bank’s asset purchase programme any time soon.
In terms of the price action on Wednesday; NZD/USD has been taking its cue mostly from the US dollar side of the equation on Wednesday. The US dollar has shrugged off a minor retracement in US bond yields (the US 10-year has dropped back to below 1.28% from session highs above 1.32%, down around 2bps on the day). Note that a steep rise in US bond yields on Tuesday supported the buck. The US dollar is also benefitting from a string of very strong US data releases…
Strong US data
Starting with Retail Sales; headline retail sales was up 5.3% MoM in January, way more than expectations for a MoM growth rate of 1.1%. The YoY rate rose to 7.4%, up from 2.5% in December. Clearly, the impact of the latest round of fiscal stimulus, which included a $600 cheque for each adult American citizen, was much more positive on consumer spending than anticipated. Economic reopening as Covid-19 cases dropped in many parts of the US also seems to have helped.
The Core and Control measures of retail sales growth in January were even stronger than the headline figure. The latter of these is an important component in GDP growth calculations and, as a result, economists will be rethinking calls for negative US economic growth in the first quarter of 2021. While the MoM rate of retail sales growth should ease back in the coming months as the positive impulse of stimulus cheques wanes, excess savings and the return of pent-up demand ought to keep consumer spending strongly supported.
Turning to Producer Price Inflation; that was also sharply higher in January. Producer Prices grew at a MoM pace of 1.3%, pushing the YoY rate of price growth to 1.7%. The steep rise in prices in January is expected to followed by another rise in February that will reflect the recent steep rise in carbon-based energy. Wednesday’s data may serve as adding further fuel behind the recent rise in US bond yields if it boosts expectations for Fed monetary policy tightening down the line.
Meanwhile, Industrial Production data for January also beat consensus expectations, posting 0.9% MoM growth versus expectations for a monthly growth rate of 0.5%. In sum, Wednesday’s strong data is likely a taste of what’s to come throughout 2021; i.e. consumer spending continuing to roar higher amid stimulus and economic reopening and higher inflation. This is unlikely to be a particularly positive combination for precious metals markets, which seem to perform better when the economy is struggling and central banks have to actively step in with money supply expansion as a means of stimulus.
The strong US data seems to have triggered some nerves in risk assets; the S&P 500 trades down about 0.7% in a very minor continuation of the pullback from Tuesday’s record high opening levels and European equities for the most part closed in the red. Seemingly, good US data is being seen as bad data if it undermines market expectations for an accommodative Fed for a long time.
Meanwhile, US Senator Manchin (one of the more moderate Democrats) said he will not be backing US President Joe Biden’s rescue package if it is in violation of Senate budgetary rules. Assuming no Republicans vote in favour of the Biden administration’s aid package, which they hope to pass via a process called budget reconciliation that means only a simple majority is needed in the Senate, Manchin’s vote is going to be crucial. Weakness in risk assets is also not helpful to risk-sensitive NZD.
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