- NZD/USD holds lower ground near one-week low ahead of the key NZ event.
- Fed, Aussie drowned kiwi the most since previous Wednesday.
- NZ budget may portray gradual reduction in government relief as the economy recovers from the pandemic.
NZD/USD retreats to 0.7165, fading bounce off the weekly low, during the early Asian session on Thursday. The Kiwi dropped the most in over a week the previous day after markets sentiment soured on the Fed signals suggesting the policymaker’s inclination to talk tapering. Also drowning the quote was the losses of the Australian dollar, due to the close trade ties with Canberra. It should, however, be noted that the bears are cautious of late ahead of the key New Zealand (NZ) budget release, up for publishing at 02:00 AM GMT on Thursday.
The latest Federal Open Market Committee (FOMC) Meeting Minutes reiterated the policymakers’ bullish bias for the economy. However, comments suggesting that some of them are willing to discuss tapering in the next few meetings drowned risk assets, Antipodeans afterward. Also on the same side were comments from St. Louis Fed President James Bullard signaling the Fed should be nimble as the pandemic draws to a close.
The risk-off mood was severe enough to reject the early Wednesday’s NZ Producer Price Index jump in Q1 2021, not to forget the strong position of the Pacific nation when it comes to the coronavirus (COVID-19) conditions.
Amid these plays, Wall Street benchmarks posted third negative daily closings whereas the US Treasury bond yields and the US dollar Index (DXY) marked the heaviest run-up in more than a week.
Looking forward, NZD/USD traders will keep their eyes on the budget updates while seeking clues on how and when the government will start dialing back relief measures introduced during the pandemic. While the likely upbeat economic outlook may help the pair initially, signals of tapering could favor the pair sellers.
“Budget 2021 will show a dramatic improvement in New Zealand’s fiscal position compared to the Half- Year Update. Essentially, the Covid hit to the Government’s books has been significantly less than anyone feared and particularly so for the Treasury. Tax revenue and the operating balance tracks will show large upward revisions, and with a sharply lower debt track, Treasury will pare back bond issuance plans. While banking some of this upside surprise, the Government has also indicated that it will dial up its spending and investment plans,” said Westpac.
Technical analysis
A daily closing below 100-day SMA joins bearish MACD to direct NZD/USD towards a 12-day-old support line near 0.7145. However, any further weakness will have to break the 50-day SMA level of 0.7140 on a daily closing basis to confirm the seller’s entry.
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