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  • NZD/USD has been stuck in a sideways range in the consolidation of the Fed hype and in anticipation of the Xi/Trump summit this weekend.
  • Ahead of that though, the NZD is consolidating after yesterday’s surge. Expect more of the same today – Analysts at ANZ explained.  
  • Worth noting month-end and year-end flows with respect to dollar repatriation also.  
  • NZD/USD is currently trading at 0.6857 with an overnight high of 0.6884 from a North American session low of 0.6844.  

The markets have been void of anything particularly note worth on the domestic front on an economic data blackout, although NZD/USD has continued to impress within its come back through the 38.2% Fibo of the 2018 downtrend, attempting to break the 200-D SMA and has scored 3 pips over the previous recover high from November’s business, so far. However, considering the current state of play, the volatility is set to calm down ahead of the Xi/Trump meeting this weekend.  

We had a last minute whip around overnight, pertaining to the latest Brexit headlines and the confirmation from Fed’s Powell, underpinned by today’s data-dependent toned FOMC minutes, that the Fed is indeed reigning in on the rate hike rhetoric beyond December where Fed fund futures continue to price the chance of the next rate hike on the 19th at 80%.

FOMC minutes:

  • FOMC minutes: Almost all participants see another rate hike is likely to be warranted fairly soon

The main takeaway from today’s FOMC minutes of the 7-8 November meeting was that “almost all” members thought another hike is likely warranted “fairly soon”, as jobs and inflation data were in line or stronger than the Fed’s current expectations. But “many participants indicated that it might be appropriate at some upcoming meetings to begin to transition to statement language that placed greater emphasis on the evaluation of incoming data.” This underpinned the tone from Powell who was speaking on behalf of all members yesterday in his speech.  

  • CME Group FedWatch Dec hike probability stays steady at 82.7%

“Currency markets whipped around last night, jumping on any trade-related headline. It implies that the G20 meeting is going to be key in determining direction into year end. Ahead of that though, the NZD is consolidating after yesterday’s surge. Expect more of the same today,” analysts at ANZ Bank New Zealand argued.  

G20 summit begins

With respect to trade, (NZD and AUD trade as proxy to trade sentiment), the key focus on Trump and Xi’s discussion on trade (Saturday dinner) and the potential signing of the US-Mexico-Canada Agreement.

With Xi and Trump’s meeting taking the limelight for the FX space, however, what we know so far is that Trump has shown a reluctance to give much room in China’s favour. “Frankly, I like the deal we have right now,” he said today, referring to tariffs. He was on his way to Argentina overnight and is scheduled to dine with Xi on Saturday – (Market sentiment remains extremely sensitive after the US administration recently signalled its frustration with the Chinese proposals). We also heard that the China trade hawk Navarro is attending the Trump-Xi dinner,  a White House official confirmed to CNBC. The South China Morning Post first reported Navarro’s attendance, which sent the Dow briefly to its low of the day and risk sentiment to a cliff edge, weighing on the bird – (Navarro is known for his aggressive stance toward changes in the U.S. trade relationship with China).

Meanwhile, from perhaps the most optimistic viewpoint, what we might see is an immediate postponement of 25% tariffs on USD 200 billion of Chinese imports, which could be just enough to spur on a relief rally in NZD/USD to at least the 50% Fibo target up at 0.6922. The 61.8% fibo is located at 0.7040. Anything less than that would leave the trade dispute as a dark cloud over global markets, weighing on NZD/USD for the foreseeable future.  

NZD/USD levels

  • Support 0.6700  
  • Resistance 0.6890

Strong economic data in recent weeks have given flight to the bird and the 38.2% retracement fibo (at 0.6810) of the 2018 sell-off from 0.7441 highs to 0.6427 2018 lows can act as base from which the Kiwi can continue higher towards the initial 50% fibo 0.6922 target. Below the said support, bears will have eyes on the 21-D SMA at 0.6741 guarding 0.6680.