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  • US Dollar Index advances beyond 97 on Friday.
  • Heightened geopolitical tensions in Middle East help USD find demand.
  • Coming up: ISM Manufacturing PMI and FOMC December meeting minutes from US.

The NZD/USD pair lost nearly 40 pips on Thursday to close below the 0.6700 handle and extended its losses on Friday. As of writing, the pair, which touched a fresh weekly low of 0.6644 earlier in the day, was down 0.72% at 0.6652.

Escalating geopolitical tensions in the Middle East following the death of top Iranian commander Soleimani by a US rocket strike at Baghdad airport allowed the USD to find demand as a safer alternative and weighed on risk-sensitive currencies such as the NZD.

Eyes on FOMC December meeting minutes

The US Dollar Index added 0.37% on Thursday and stretched higher on Friday before the Federal Open Market Committee (FOMC) publishes the minutes of its December meeting later in the day. As of writing, the index was up 0.23% on a daily basis at 97.03.

In addition to the FOMC’s minutes, the Institue for Supply Management’s (ISM) Manufacturing PMI will also be watched closely by investors. On Thursday, the Markit Manufacturing PMI revealed that the economic activity in the US manufacturing sector continued to expand at a modest pace in December.

Previewing the FOMC event, “the previous dot plot, made in September, failed to signal the 25bp cut that materialised only one month later,” noted Rabobank analysts and added:

“We are sceptical about this new dot plot too: Cracks are starting to appear in the US economy and a mild recession appears to be in the making. Philip therefore expects a series of rate cuts this year. The big question is what economic data constitutes this ‘material reassessment’ that the Fed requires to conform to this view.”

Technical levels to watch for